BEIJING/STOCKHOLM Sweden's Volvo (VOLVb.ST) said it will surpass Daimler (DAIGn.DE) as the world's biggest maker of heavy trucks after agreeing to set up a joint venture in China with Dongfeng Motor Group Co.(0489.HK).
Volvo will pay 5.6 billion yuan ($900 million) for a 45 percent stake in the JV, giving it access to China where it currently has only a minor presence.
China was ... "a little bit of a missing link in our global strategy for ...Volvo trucks," Volvo CEO Olof Persson said in a conference call with analysts and journalists. "With this agreement ...we get a major foothold and share in the world's largest truck market."
The two firms will form a new venture called Dongfeng Commercial Vehicles after the Chinese firm buys Japan's Nissan Motor Co. (7201.T) out from their joint venture in medium and heavy-duty trucks.
Dongfeng is the world's second largest producer of heavy-duty trucks and China's biggest with total sales of 186,000 in 2011.
About 142,000 were produced by the part of the company that will be included in the joint venture, which would have had a roughly 16 percent share in the Chinese heavy-duty truck market and a 17 percent share in medium-sized trucks in 2011.
Volvo had sales of around 180,000 vehicles in 2011. Market leader Daimler had sales of around 436,000 in 2011, but that figure includes light trucks.
With European and U.S. markets depressed due to the global slowdown, truck makers have been looking to emerging markets to boost growth and profitability.
During 2012, the Chinese market for heavy-duty trucks totaled around 636,000 vehicles with a further 290,000 medium-sized vehicles.
Volvo reckons the European and North American truck markets to be flat in 2013 at around 230,000 and 250,000 vehicles, respectively.
Volvo said the deal would mean cost savings from cooperation in transmissions, engines and the development of future technology and the companies would also benefit from pooling purchasing in China.
The Swedish company already has a small joint venture with Dongfeng which it acquired when it bought UD Trucks from Japan's Nissan in 2007.
That joint venture, DND, assembles UD trucks manufactured in Japan. Volvo also sells a small number of trucks in China under its own brand.
According to Volvo's annual report, sales of the earlier joint venture and exports of Volvo brand trucks amounted to around 1,900 units in 2011.
The company, however, is no stranger to China and Volvo Construction Equipment is the leading player in country in wheel loaders and excavators.
Volvo said completion of the transaction is subject to conditions including approval of relevant anti-trust agencies and Chinese authorities.
($1 = 6.2205 Chinese yuan)
(Editing by Paul Tait and Jason Neely)