February 4, 2013 6:15 AM, EST
Volvo to Invest Some $900 Million in Venture With China’s Dongfeng
Dongfeng Motor Group truck — TT File Photo
By Rip Watson, Senior Reporter

This story appears in the Feb. 4 print edition of Transport Topics.

Volvo AB has agreed to spend nearly $900 million to form a joint venture with China’s Dongfeng Motor Group Co. to expand Volvo’s presence in that country and become what it said would be the world’s largest maker of heavy-duty trucks.

Volvo said Jan. 26 it intends to take a 45% stake in the venture, to be known as Dongfeng Commercial Vehicles, or DFCV. It will include most of Dongfeng’s current heavy- and medium-duty business in China, the world’s largest truck market.

Volvo said it and DFCV would have annual production of 326,000 heavy trucks, based on combined 2011 production statistics. Volvo would be the world’s largest heavy-truck maker, according to consultant Global Insight and company data.

“China is the world’s largest truck market, with a total market for heavy trucks equivalent to the European and North American markets combined,” said Volvo CEO Olof Persson. “This is a very exciting venture that will combine the best of two worlds, strengthening the positions of the Volvo Group and Dongfeng.”

Total truck sales volume in China hit 1 million vehicles in 2010, but has slumped sharply due to a recession. Chinese heavy-truck production totaled 636,000 last year, Volvo said.

Volvo counts itself currently as the third-largest truck maker and Dongfeng as No. 2, with Daimler AG as the biggest. By market capitalization, Daimler’s $58.4 billion is nearly twice the size of Volvo’s $32.1 billion.

Persson said on a conference call that DFCV was intended to produce cooperative efforts to design and sell engines and powertrain components, while also creating new sales and marketing and sourcing opportunities.

The transaction requires government approvals in China and is expected to be completed in 12 months, Volvo said.

The company doesn’t see the Chinese investment as having any effect on its U.S. business, spokeswoman Kina Wileke told Transport Topics.

The DFCV announcement is Volvo’s second attempt at a joint venture in China. Ten years ago, the company formed Jinan Huawo Truck Corp. with China Heavy Truck Group Corp. That venture, which wasn’t successful, was disbanded after Volvo announced in 2009 that it would sell its interest in Jinan Huawo to its partner.

Volvo’s current announcement is the latest in a series of initiatives in China by other truck manufacturers that sell vehicles in the United States.

Daimler is working on its own second attempt in China, a joint venture known as Beijing Foton Daimler Automotive, which last year said it would build an engine plant in China.

That plant, where as many as 45,000 engines for the Auman nameplate could be built annually, is expected to be completed next year.

Navistar Inc. in 2012 announced approval from Chinese authorities to build an engine plant with its partner, Anhui Jianghuai Automobile Co. Ltd.

Paccar Inc. sells vehicles through a Chinese dealer network, according to Paccar’s website.

Volvo already has a small presence in China.

“In Dongfeng, we have a partner that we know well, having worked together for several years, and with a management team and a product range that we really appreciate,” said Persson.

He was referring to an existing joint venture with Dongfeng known as DND. That venture is slated to become part of the newly announced joint venture after regulatory approval.

The DND joint venture was formed through Volvo’s UD Trucks brand.

Volvo in its 2011 annual report said the DND venture sold 900 trucks in that year, and 1,000 trucks with the Volvo nameplate were sold in China in 2011.

Based on 2011 results, annual sales for DFCV topped $6.5 billion, with operating income of about $200 million. By comparison, Volvo Group’s heavy-duty truck sales for that year were about $35 billion, with deliveries of 238,391 vehicles. 2012 results haven’t been released for either company.

There will be eight members of the DFCV management group, four from each of the joint-venture partners. The venture’s seven-member board of directors will include four named by Dongfeng and three from Volvo.

Dongfeng has a 16% market share in China and a network of 350 dealers, Persson said.

Additional details of the plan, such as export opportunities, weren’t disclosed during a conference call.

Volvo’s statement said its new joint venture was made possible by a recent agreement between Dongfeng and Nissan Motors. Dongfeng agreed to buy out Nissan’s portion of a commercial vehicle between those two companies.