Monday, July 20, 2009

A Closer Look At Volvo´s Customer Finance Arm......

Underneath the headline ( Volvo swings to loss as deliveries slump ) another trend is emerging..... With a credit reserve under 2 percent ( close to 400 percent increase YOY )it looks like their credit book will be a significant headwind for quarters to come..... This kind of "vendor financing" is widespread and i´m pretty sure we will more of this kind of problems on a regular basis ( see BMW & Harley Davidson )

Hinter der ernüchternden Schlagzeile Lkw-Bauer Volvo im 2. Quartal schlechter als erwartet verbirgt sich ein anderer Trend der bald wohl desöfteren nachzulesen sein wird. Da bei Volvo die Reserven für mögliche Kreditausfälle momentan bei nur 2% ( und das nach fast 400% Anstieg auf Jahressicht ) liegen dürfte deren Kreditbuch die nächsten Quartale sicher nicht zum Ergebnis beitragen......Diese Art der "Absatzfördeung" ist über etliche Branchen weit verbreitet und dürfte zukünftig regelmäßig für wenig erfreuliche Nachrichten sorgen ( siehe BMW & Harley Davidson ).

Volvo

Operating income was negatively affected by SEK 3.2 billion in increased provisions for credit losses and residual value commitments, lay-off related costs and write-downs on inventories as well as costs associated with an agreement with UAW regarding healthcare benefits for retirees

Within the customer-financing operations of Volvo Financial Services, provisions increased for credit losses, primarily in Western Europe, which resulted in a loss for the quarter. This development is to be against the backdrop of our customers having lower freight volumes as a result of the weak economic trend throughout the world. We are working actively with the customers and have an established process for managing customers who have difficulty in paying back their loans.

In Western Europe customers are challenged by the substantial reduction in economic activity leading to an increasing level of delinquency and repossessions.

Continuing to be affected are segments directly associated with the production of motor vehicles, which, despite stimulus programs, remain under pressure. In markets such as Spain the widespread economic slowdown has impacted portfolio performance. In Eastern Europe, there has been little or no improvement since the first quarter as many countries continue to experience a steep decline in economic activity. This means that customers in many segments struggle to meet their obligations and require long term assistance in the form of restructured financing to continue operations.

The operating loss in the second quarter, as a result of higher credit provisions, amounted to SEK 296 M, compared to an operating income of SEK 387 M in the previous year.

VFS has increased the credit provisions primarily in Western Europe during the second quarter of 2009. Total credit provision expenses amounted to SEK 663 M (59) which was higher than the write-off level of SEK 563 M (103).

This resulted in an increase in the credit reserve from 1.72% at March 31, 2009 to 1.88% of the credit portfolio at June 30, 2009.


The annualized write-off ratio through June 30, 2009 was 1.77% (0.37).

At June 30, 2009 total assets amounted to SEK 109.7 billion (99.2). The credit portfolio decreased by 3.6% net over the last twelve months, adjusted for exchange-rate movements.

> Add higher financing cost & this as another kind of vendor financing to the mix and the picture isn´t getting any better..... Needless to say that the stock is up close to 4%....... Probably because the time of negative orders is now over...... ;-)

> Wenn man jetzt noch höhere Finanzierungskosten & diese Form der Absatzförderung hinzunimmt dürften die Riskien für Firmenbilanzen nicht gerade weniger werden...... Überflüssig zu erwähnen das die Aktie mit 4% im Plus notiert...... Liegt wohl daran das endlich die Zeit der negativen Orders vorbei ist......;-)

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