Volvo spokesman Marten Wikfors said the layoffs will affect 900 workers in the Swedish cities Skovde, Goteborg and Koping, as well as 65 staff in Hagerstown, Maryland.
He said a number of consultants in Sweden could also receive notices.
Volvo Powertrain makes engines, gear boxes and rear axles for trucks.
"When you see such an extreme slowdown in the financial markets our customers get insecure and stop buying trucks. Of course that also affects Volvo Powertrain since they make the engines for those trucks," Wikfors said. "There is still a lot of uncertainty in the market and we see no light at the end of the tunnel."
Sweden's large motor industry has been hit hard by the global financial crisis and in October the government was forced to set aside 1.5 billion kronor ($211 million) for extra unemployment support.