Dongfeng Motor & Volvo Group Sign a Deal on CVs' Venture

www.chinatrucks.com: On Jan. 26th 2013, Chinese vehicle manufacturer Dongfeng Motor Group Company Limited (DFG) has officially signed a strategic alliance agreement with Sweden’s AB Volvo Group, the world's second-biggest truck maker in Beijng to set up a joint venture to produce medium- and heavy-duty leading “Dongfeng” commercial vehicles. Yongfu Zhu, the Executive Director of Dongfeng Group and Joachim Rosenberg, Vice President responsible for Volvo Truck Sales & Joint Venture in Asia Pacific on behalf of the two group and signed a cooperative foundation agreement.

Dongfeng Motor and Volvo Group signed a alliance agreement

The joint ventured DFG, Dongfeng Commercial Vehicles (DFCV), which will include the major part of DFG’s medium- and heavy-duty commercial vehicles business. The shareholding ratio between the two parties will be 55:45, with Dongfeng Motor as the majority shareholder. According to the agreement, Dongfeng Motor will be responsible for production, while Volvo will provide technology solutions.The joint venture with DFG follows the recent agreement between DFG and Nissan Motors, in which DFG purchased the medium- and heavy-duty commercial vehicle operation from the joint venture DFL (owned jointly by DFG and Nissan Motors).

The DFCV management team will consist of eight members, with Volvo nominating four of the eight members and Dongfeng the remaining four. Dongfeng will nominate the company’s Managing Director, while Volvo will be responsible for nominating the Chief Financial Officer. The Board of DFCV will comprise seven board members and it has been agreed that the Volvo Group will account for three places and DFG four.

Dongfeng was the second largest producer of heavy-duty trucks in 2011, with total sales of 186,000 units, of which approximately 142,000 units were produced by the part of the company that will be included in DFCV. The Volvo Group is the world’s third largest manufacturer of heavy-duty trucks with 180,000 units sold in 2011.

Ping Xu, President of Dongfeng Motor Group

Ping Xu, President of Dongfeng Motor Group said, through establishing the strategic alliance on commercial vehicles, both parties could reach a win-win situation in the future. More important, it will help to accelerate the brand image of Dongfeng Commercial Vehicles to international market as well as its core competiveness.

Volvo’s President and 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 and offering excellent opportunities to both parties,” says Volvo’s President and CEO Olof Persson. “Combining Dongfeng’s strong domestic position and know-how with the Volvo Group’s technological expertise and global presence will offer DFCV excellent potential for growth and profitability in and outside China.”

For the first three quarters of 2012, DFCV’s net sales amounted to approximately RMB 22 billion (pro forma) and operating income to approximately RMB 0.3 billion (pro forma). During the same period, 81,000 heavy-duty trucks and 35,000 medium-duty trucks were sold by DFCV (pro forma). As Volvo said, at the end of the third quarter of 2012, DFCV had net financial debt of approximately RMB 500 million (pro forma). The AB Volvo holding in DFCV is expected to be reported as an associated company and consolidated in accordance with the equity method, one-line consolidation, within the Trucks segment.

During 2012, the Chinese market for heavy-duty trucks totaled approximately 636,000 vehicles, while the corresponding figure for the medium-duty market was 290,000 vehicles. DFCV occupied a leading position in China in both the heavy- and medium-duty segments, with sales of 102,000 heavy-duty trucks and 45,500 medium-duty trucks, corresponding to market shares of 16.1% and 15.7%, respectively.

“China is the world’s largest truck market with a total market for heavy trucks equivalent to the European and North American markets combined,” says Olof Persson. “The partnership between the Volvo Group and DFG will strengthen DFCV’s already strong position in China and provide the company with the right conditions for successful international expansion.”

The partnership with DFG not only provides the Volvo Group with ownership in the largest heavy-duty and medium-duty truck manufacturer in China, but also offers excellent opportunities to achieve economies of scale in terms of sourcing, development and production for the Group’s truck operations. There are a number of areas in which cooperation is planned between DFCV and Volvo, such as engines and powertrain components, product platforms and purchasing.

“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,” says Olof Persson, Volvo President and CEO. “Joining forces will provide clear benefits for both parties and the right conditions to develop DFCV into a competitive and successful international truck manufacturer with healthy profitability.”

“This partnership will enable us to significantly strengthen the Group’s position, both in and outside China,” says Olof Persson. “With DFG as a partner, we can improve our position in the increasingly important Chinese market and become more internationally competitive by virtue of the Chinese volumes.”

The strategic alliance is subject to certain conditions, including approval of relevant authorities. The ambition is to complete the transaction as soon as possible and completion is expected to take place within approximately 12 months from today.

Views:0

share: