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Volvo + DongFeng = Nissan Motors?

Olaf Persson Olaf Persson. Photo source Volvo Group

AB Volvo has signed an agreement with a Chinese vehicle manufacturer Dongfeng Motor Group about the acquiring of 45% stakes in its subsidiary Dongfeng Commercial Vehicles (DFCV) with the rights of producing medium- and heavy-duty commercial vehicles. When the transaction be completed Volvo Group will be the world`s largest manufacturer of heavy trucks.


DFCV management team will consist of eight members - these positions will be divided equally between the two companies. For the vacancy of DFCV General Manager a person from Dongfeng will be nominated, and the Director of Finance will be a Swede. The DFCV Board of Directors will consist of seven members, four of whom will be from the Chinese side.


From the words of the President of Volvo Group Olaf Persson, the deal will join the best of the two worlds, strengthen the Volvo Group and Dongfeng positions and provide an excellent opportunity for both companies. Dongfeng’s strong domestic position plus Volvo Group technology and know-how will let Volvo penetrate deeper into the Chinese market, and Dongfeng will try its hand at the world stage. The Chinese market for Volvo Group means a lot. This truck market value exceeds the value of Europe and North America markets combined.


Before the conclusion of the transaction a certain conditions must be done, namely, the approval of relevant anti-trust agencies and Chinese authorities. The transaction amount is $890 million. The money will be paid off after the completion of trancsaction. It is planned to make a deal as soon as possible, but most likely the procedure will stretch for another 12 months.


Shortly before the current events Dongfeng signed an agreement with Nissan Motors. Under this agreement, Dongfeng acquired the parts of the rights on manufacturing of medium-and heavy-duty trucks in a joint venture of Dongfeng and Nissan Motors, which has been called DFL. After that the most of this right passed to earlier created company – Dongfeng Commercial Vehicles (DFCV). Now, AB Volvo acquired 45% stakes of DFCV. So, is it true that DFCV combines three companies – Dongfeng, AB Volvo and Nissan Motors?


In 2011, the Volvo Group sales in the segment of heavy trucks draw 180,000 units, while sales of Dongfeng - 186,000, 142,000 of which were produced by DFCV. The DFCV working staff accounts 28,000 employees. The DFCV official net sales in 2011 amounted RMB 39 billion ($268 million).


In total there were sold 636,000 vehicles in the Chinese heavy truck market in 2012, with the rate of medium-duty truck in the segment in 290,000 units. So, it becomes that the DFCV is a leader in the domestic market in both segments.


Will Volvo expand in Chinese market at this time – wait and see. In the meantime, experts do not exclude the repeating of history that took place a decade ago, when the Volvo Group formed a joint venture with China National Heavy Truck Corporation called Jinan Huawo Truck Corporation. That time Volvo also hoped to fulfill the Chinese market with its trucks, but DPRK authorities created a major gap in the Swedes strategy by one stroke. They just forbade Jinan Huawo Truck Corporation truck to drive country public roads. Volvo Group had to give ground, and the China National Heavy Truck Corporation shamelessly continued to produce trucks using Volvo’s technologies. They branded it as HOWO. By the way, HOWO trucks gained popularity all around the world for its affordability.

Based on this sad experience, Olaf Persson is not going to put all eggs in one basket and is not intended to move jobs and production to China.

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