Volvo Loosens Structure With Deal

PARIS — In a move that represents a significant loosening of its vertically integrated structure, Volvo Truck Corp. has decided to outsource its heavy-duty rear axles to U.S.-based Meritor Inc.

Under an agreement announced Monday, Meritor will pay $135 million to acquire Volvo Truck’s rear axle plant in Lindesberg, Sweden, which manufacturers rear axles for Volvo’s European truck models, Volvo Buses, and Volvo Construction Equipment. Meritor will become a global supplier of rear axles for Volvo and take over responsibility for developing new rear axles for Volvo in the future.

"We are no longer going to build rear axles," Tommy Kohle, a spokesman for Volvo said. "Meritor can provide us with rear axles of the standard we require, and has better economies of scale."

"The agreement with Meritor gives us a secure supply of rear axles for our assembly plants over the world," said Karl Erling Trogen, president of Volvo Trucks.

The deal with Meritor will not change Volvo’s U.S. business, where it has adopted the American truck manufacturing approach of primarily assembling components built by outside suppliers. In the U.S. it will continue to offer customers different rear axles options, including Meritor’s.

But in Europe, the move represents a major shift in Volvo’s approach to business. Rear axles are part of the powertrain that Volvo has always claimed is of "strategic importance" in differentiating its trucks from those of other European manufacturers.

According to Mr. Kohle, Volvo will continue to build its own cabs, chassis, engines and gearboxes in Europe.

"That’s what makes it a Volvo," he said. "But today we are continuously re-examining ourselves, and want to put the focus on customer’s needs."