Volvo expects a ‘difficult’ first quarter as the economic crisis in Europe led to a decline in demand and a 84% fall in profit at the end of 2012.

“Profitability will be affected by low capacity utilization” as well as by “high” research and model- introduction costs, Chief Executive Officer Olof Persson said today in a statement.

According to him, Volvo’s fourth-quarter earnings before interest and taxes dropped to $177 million. The automaker has already eliminated 2,000 jobs in Sweden, ended bus manufacturing in the country and also closed a plant in Japan. During the third quarter of 2012 the 17 nations sharing the euro went into recession and the US auto market shrank during the fourth quarter.

“It’s tough for the company to cut costs so quickly,” said Mattias Eriksson, a Stockholm-based equity strategist at Nordea Bank AB with a buy recommendation on the stock. “They’re trying to get the costs down gradually, and hopefully demand is improving as well.”

Volvo announced it is making heavy investments in new models, such as the new Volvo FH heavy-truck series, a range of cheaper models and vehicles for Renault Trucks brand. Deliveries during the fourth-quarter dropped 15% to 58,626 trucks and orders fell 9.6% to 52,145 units.


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