Volvo to end Sinotruk tie, may resume Dongfeng talks

Volvo AB (VOLVb.ST) has agreed to withdraw from its truck venture with the state parent of Sinotruk (3808.HK), moving closer to a possible tie-up with Dongfeng Motor Group Co (0489.HK), sources familiar with the situation said on Wednesday.

Volvo reached agreement with China National Heavy-Duty Truck Corp recently to pull out of their truck venture after production had been suspended for several years due to poor sales, a source at the Chinese truck maker said.

The move, which follows Sinotruk's new $800 million tie-up with Europe's MAN (MANG.DE), could spur a partnership between Volvo and Dongfeng, another source with direct knowledge of the situation told Reuters.

Spokesmen for Volvo and Dongfeng could not be immediately reached for comment.

Dongfeng Motor, China's third-largest automaker, had detailed discussions with Volvo years ago to bring the Swedish company into its vehicle venture with Nissan Motor Co (7201.T).

Dongfeng said in January 2007 that talks with Volvo could lead to an investment by the Swedish company in that venture, whose operations include the manufacture of heavy- and medium-duty commercial vehicles.

Dongfeng said at that time that, if a deal were to go through, Nissan could focus on the manufacture of passenger cars and light commercial vehicles in the venture.

"The two sides had no major disputes on most of the key issues at the time. The only obstacle was that Volvo had too many partners in China," said the second source.

Foreign automakers are generally allowed a maximum of two joint venture partners in China, but Volvo will still have two vehicle ventures even after its withdrawal from the tie-up with China National.

It makes buses in China with SAIC Motor Corp (600104.SS), China's biggest automaker, and with Xi'an Aircraft Industry (Group) Co, parent of Xi'an Aircraft International Corp.

NEW PARTNERSHIP

Volvo, the world's second-largest truck maker, operates assembly plants in Thailand, Taiwan, Malaysia and India, supplying the regional and global markets.

However, its venture with China National never gained much traction, producing little more than 1,000 vehicles since it was established in 2003, according to its Chinese partner.

Volvo announced in February 2007 that it would take over Nissan Diesel Motor (NSNDF.PK) for $1.1 billion to strengthen its Asia operations, paving the way for expansion in the China market.

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