From: Reuters
Published March 5, 2008 10:38 AM

Volvo to close bus plant due to overcapacity

STOCKHOLM (Reuters) - Sweden's Volvo <VOLVb.ST> said on Wednesday it would shut its Tampere, Finland, bus body plant and reorganize one in Turku in steps that could lead to 300 Finnish job cuts, prompting a walk-out by Tampere staff.

The world's number two truck maker, which also makes buses, construction equipment, marine engines and aircraft parts, said the moves were part of an effort to make bus operations more competitive and to address overcapacity.

"In total, approximately 300 employees could be affected," Volvo said. "Currently, Volvo Buses has an overcapacity in its European bus body production system and foresees that this will be the case also in the coming years."

"The intention is to adjust production capacity as a part of the strategy to strengthen Volvo Buses' profitability."


Tampere factory staff walked out after the news, Volvo spokesman Per-Martin Johansson said. He said had no information on how long production would be halted but that the stoppage was unlikely to have a material impact on Volvo.

"A couple of days' production halt don't affect group finances," Johansson said.

Profitability at Volvo's bus business has lagged the group's much bigger heavy-duty truck operations in recent years, prompting calls from shareholders such as activist fund Cevian for a revamp of the business.

The unit's operating margin in the fourth quarter of 2007 was 1.8 percent versus 7.3 percent for the trucks unit which, with sales of 109 billion Swedish crowns ($17.69 billion), was more than six times the size of the bus division last year.

Johannson said the decision to close the Finnish plant was not a reflection of any slowdown in demand, projecting a stable European bus market this year and the next.

"During 2007 we had a slightly lower volume than in 2006, but that was marginal. It is rather the case that we, for some time now, have had greater capacity at the plants than what we actually have been able to utilize," he said.

"Our estimate is that (European) demand will be at approximately the same level (as in 2007) in the coming years."

Negotiations with employees affected by the cutbacks in Finland would take about six weeks after which Volvo would disclose the cost of the measures, the firm said.

Volvo shares were up 1.4 percent at 91.25 crowns by 1511 GMT, underperforming a 2 percent gain in the Stockholm bourse's blue chip index <.OMXS30>.

(Reporting by Lina Osterberg, Anna Ringstrom and Niklas Pollard; Writing by Niklas Pollard; Editing by Richard Hubbard)

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