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Volvo Cars launches cost cutting measures as trade war dents profit again

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By Reuters
Volvo Cars launches cost cutting measures as trade war dents profit again
FILE PHOTO: A long exposure picture shows cars of Swedish automobile manufacturer Volvo displayed in front of a showroom of Stierli Automobile AG company in St. Erhard, Switzerland April 11, 2019. REUTERS/Arnd Wiegmann   -   Copyright  Arnd Wiegmann(Reuters)
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STOCKHOLM (Reuters) – Sweden’s Volvo announced new measures to cut fixed costs by 2 billion Swedish crowns (172.03 million pounds) on Thursday, as it became the latest carmaker to warn that pricing pressure and tariffs arising from the Sino-U.S. trade war were denting profitability.

Carmakers are under pressure from trade conflicts, hefty bills to develop electric and driverless cars and an overall downturn in the car industry.

Volvo, which as part of China’s Geely family aims to produce premium cars to rival BMW <BMWG.DE> and Daimler’s <DAIGn.DE> Mercedes-Benz, has rejigged its global production plans in an effort to blunt the impact of increased tariffs.

Second-quarter operating profit fell 38.1% to 2.6 billion crowns in the three months to June 30, a worse quarter-on-quarter drop than in the first quarter and despite revenues improving by 1.8% to 67.2 billion crowns.

“Market conditions are expected to put continued pressure on margins, but the combination of volume growth and cost measures is expected to result in a strengthened profit in the second half of the year compared with the same period last year,” Volvo said in a statement.

The carmaker said the new cost measures, which it did not detail, would come into effect in the second half of the year and run into the first half of 2020.

Volvo, which employs over 40,000 people, has already been reviewing its staffing and other costs. It cut 500 consultant positions and a couple of hundred support service roles earlier this year.

Earlier this month, Daimler cut its profit forecast for the fourth time in 13 months. In May, BMW warned on profits, while Volkswagen <VOWG_p.DE> said the return on sales at its passenger cars division would come in at the lower end of its target.

(Reporting by Esha Vaish in Stockholm; Editing by Kirsten Donovan)