Volvo takes pole after China truck purchase

Swedish truckmaker Volvo claims to have become the largest global manufacturer of heavy trucks after completing the purchase of 45 percent of Chinese firm Dongfeng Commercial Vehicles (DFCV).

Volvo takes pole after China truck purchase

The firm announced on Saturday that it had agreed to pay almost 5.8 billion kronor ($900 million) for the stake in the Hubei-based firm, which is a newly formed subsidiary of Dong Feng (DFG).

“The deal is a fantastic opportunity for us, and gives us a strong position in the world’s largest truck market. The Chinese market is as big as USA’s and Europe’s combined,” said Volvo’s spokeswoman Kina Wileke to the TT news agency.

The deal is conditional on the approval of competition authorities and is expected to take around 12 months to complete. But according to Wileke it establishes AB Volvo as market leader within heavy trucks, overtaking Daimler.

“Dong Feng and AB Volvo sold a combined 400,000 heavy and medium duty trucks in 2011,” she pointed out.

Volvo will make payment of the some 5.6 billion Chinese Yuan sales price at the completion of the deal. Dong Feng will retain the remaining 55 percent in DFCV.

The deal will increase AB Volvo’s net debt by around 6 billion kronor and the firm declined to specify how the purchase will be financed.

“We are not telling,” Kina Wileke said.

According to Wileke, the deal is the largest single industrial investment by a Swedish firm to date in China and she assured that there are no plans to shift jobs from Sweden to China.

“As it looks now we are not going to move any jobs from Sweden to China as a result of this deal, on the contrary it creates employment. When we create jobs overseas, it also creates jobs in Sweden,” she said.

AB Volvo’s CEO Olof Persson called the partnership with Dong Feng “the best of both worlds” in a press statement.

“Dong Feng is a partner we know well, which we have worked with over the course of several years and which has a leadership and a product assortment which we really like,” he said.

Persson identified benefits for both firms from the deal, pointing out the “excellent opportunities for economies of scale within purchasing, development and production within Volvo concern’s truck operations”.

DFCV holds a market share in China of around 16.1 percent within heavy duty trucks and 15.7 percent within medium-duty trucks. The firm has 28,000 employees.

The firm’s head office is located in Wuhan in Hubei province and its truck operations and manufacture are concentrated in Shiyan, also in Hubei.

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Sweden’s Volvo regains strength after pandemic puts brakes on earnings

Swedish truck maker Volvo Group was hit by a sharp drop in earnings due to the coronavirus pandemic, but business rebounded at the end of the year.

Sweden's Volvo regains strength after pandemic puts brakes on earnings
Volvo Group CEO Martin Lundstedt. Photo: Adam Ihse/TT

In 2020, the group saw “dramatic fluctuations in demand” due to the Covid-19 pandemic, chief executive Martin Lundstedt said in a statement.

For 2021, Volvo raised its sales forecasts in its trucks division – its core business – in Europe, North America and Brazil.

However, it said it also expected “production disturbances and increased costs” due to a “strained” supply chain, noting a global shortage of semiconductors across industries.

The truck making sector is particularly sensitive to the global economic situation and is usually hard hit during crises.

In March, as the pandemic took hold around the world, Volvo suspended operations at most of its sites in 18 countries and halted production at Renault Trucks, which it owns, in Belgium and France.

Operations gradually resumed mid-year, but not enough to compensate for the drop in earnings.

With annual sales down 22 percent to 338 billion kronor (33.4 billion euros, $40 billion), the group posted a 46 percent plunge in net profit to 19.3 billion kronor (1.9 billion euros).

Operating margin fell from 11.5 to 8.1 percent.

However, the group did manage to cut costs by 20 percent.

“We have significantly improved our volume and cost flexibility, which were crucial factors behind our earnings resilience in 2020,” the group said.

Volvo's business regained strength in the second half of the year.

“Customer usage of trucks and machines increased when the Covid-19 restrictions were eased during the summer and this development continued during both the third and fourth quarters,” it said.

“Both the transport activity and the construction business are back at levels on par with the prior year in most markets.”

For the fourth quarter alone, the company reported a 38-percent rise in net profit from a year earlier.