Scania's President and CEO: “Scania is well positioned”

The world economy will lose momentum in 2012. This will also affect Scania. However, President and CEO Leif Östling says that the company is now better positioned for tougher times than ever before.

It started with a bang and ended with a whimper – 2011 was yet another dramatic year. Scania was affected by a world economy that began in high gear but slowed as the euro zone crisis deepened. Despite a weaker year-end, Scania reported record-high vehicle deliveries and service sales, as well as the highest earnings per share in company history.

However, the profit margin fell somewhat compared to 2010, when Scania was helped among other things by a weaker Swedish krona and by the effects of its temporary cost-cutting measures from 2009.

– The market deceleration began in southern Europe during the third quarter last year. It is very likely that the global economy will cool down during 2012, and this is particularly true for Europe and the BRIC countries. What we are now seeing is a continuation of the financial crisis of 2008. By pumping liquidity into the financial system, we deferred addressing the problems of under-balanced budgets and an ageing population, says Leif Östling, President and CEO of Scania.

Scania has reacted swiftly to the downturn and has already announced two rounds of cutbacks in production rates at its units in Europe and Latin America.

– We are not going to be left sitting with an organisation that is too large, but will instead take additional measures if needed during 2012, says Östling.

He maintains that Scania is better equipped for tougher times on all fronts compared to the situation before the financial crisis of 2008.

– The strong cash flows during 2010 and 2011 have made our balance sheet much stronger. We have also boosted our flexibility and reduced delivery time, which means that we can react more quickly to changes in demand and minimise the risk of a large inventory of unsold vehicles.

But there are also regions where the situation looked better in 2008. In the Brazilian market, which was largely unaffected by the latest financial crisis, there is uncertainty about the general economic trend and how the introduction of the stricter Euro 5 emission standards will affect demand.

– In commodity-exporting countries such as Brazil and Russia, we are influenced by the general economic trend. There are also signs of a slowdown in markets such as India and China, where we are more of a niche player, but the economic cycle is not as important to Scania in these markets, says Östling.

However, for Scania, 2012 is naturally not just a matter of responding to a shaky economic trend. The company is continuing to refine its business model towards becoming a comprehensive supplier with a growing share of service-related products.

– The brand is gradually starting to move more and more from trucks and buses towards creating a partnership with the customer in which we deliver the products and services the customer needs for a profitable transport operation. This change of what the brand represents means a major mental shift for Scania.

One element of this change is to meet the ever-higher environmental and sustainability standards of Scania’s customers and of their customers.

– There is no conflict of interest in our ambition to make our customers’ businesses as profitable and as climate and environmentally sustainable as possible. On the contrary, the best possible uptime and low operating costs also mean less environmental impact, says Östling.

The quality that Scania stands for also goes hand in hand with a philosophy of sustainability, Östling observes, citing the Chinese truck market as an example:

– Scania’s trucks have a service life three times longer than Chinese trucks. Given Scania’s uptime and capacity, 300,000 trucks would actually be enough for the Chinese market, as opposed to 800,000 today. So there is enormous potential to reduce waste.