Trump tariffs blamed for slowdown, less hiring at new Volvo plant in South Carolina

CNBC
Updated
Volvo Cars reported higher full-year revenue on Thursday, but said its profit margins had slipped and were expected to remain under pressure this year.

Volvo is scaling back plans for its new assembly plant just outside Charleston, South Carolina, as a result of the trade war triggered by President Donald Trump .

The $1.1 billion factory opened earlier this year and was expected to earmark about half of its capacity for export markets, including China, where Volvo's parent, Zhejiang Geely, is based. But the Chinese market for American-made vehicles has largely dried up as a result of tariffs the Chinese have enacted in response to Trump's import tariffs.

That is impacting a number of automakers with manufacturing operations in the U.S., including BMW and Ford, as well as Volvo.

Volvo's North American CEO, Anders Gustafsson, warned earlier this month that the tariffs could force the company to rethink plans to ramp up production and hire new workers at the South Carolina plant. A company statement issued this week confirmed that "trade issues may impact the pace of the expansion."

Volvo's global CEO, Håkan Samuelsson, went a step further, telling some reporters at the Los Angeles Auto Show on Thursday that Volvo is slowing the pace at which production is being ramped up in Charleston, a move that will also result in a slowdown in hiring, a company spokesman confirmed.

The factory started producing the S60 sedan and will add the next-generation XC90 sport utility vehicle in 2021. The initial, 1,500-man workforce was originally expected to grow to about 4,000 once up to full speed. But that now appears to be a figure in play.

"We … thought Charleston could build cars for China," Samuelsson told USA Today. "That will not work."

The big question, Gustafsson and other Volvo officials have told CNBC, is whether the trade war with China is a temporary matter or one that could drag on for some time. Volvo appears not to be taking chances and is now making plans to shift at least some of the production of the new Volvo S60 sedan to one of its two plants in China.

BMW (BMW-DE) is studying similar options, the company has confirmed, for some of the sport utility vehicles produced at its own South Carolina assembly plant. The plant has become "the highest value exporter of U.S.-made vehicles," North American CEO Bernhard Kuhnt said during a Los Angeles Auto Show presentation.

Ford (F) has not said whether it will have to make cuts at any of its own U.S. plants producing vehicles like the Mustang that it had been exporting to China.

While China has seen an explosion in production capacity in recent years, many automakers still find it makes sense to import some vehicles for that market, often lower-volume models that can't be produced there profitably.

Until recently, imports were saddled with a 25 percent tariff. Ironically, Chinese President Xi Jinping has taken several steps to reduce automotive trade tensions this year, like lowering those tariffs to 15 percent on cars brought in from other global markets. But in response to the first round of the Trump trade war, China increased duties on American-made vehicles to 40 percent.

The White House has sent a series of mixed and often conflicting signals about how efforts to resolve the trade dispute are going. If anything, the president has indicated an interest in finding a way to match the higher Chinese tariffs on American-made vehicles.

Meanwhile, Trump continues to threaten to apply new tariffs on automotive imports from Europe and other trade partners, as well as China.

"Get smart Congress," Trump said in a Wednesday tweet, arguing that "the countries that send us cars have taken advantage of the U.S. for decades."

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