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EU green lights Volvo and Dongfeng merger

The European Commission approved on Wednesday a tie-up between Sweden's Volvo Trucks and China's Dongfeng Motor which will create the world's biggest truck maker ahead of Germany's Daimler.

Published: 8 May 2013 15:22 CEST

EU green lights Volvo and Dongfeng merger

Under the deal, worth $900 million, Volvo Trucks will acquire a 45-percent stake in the Chinese company’s Dongfeng Commercial Vehicles (DFCV) unit, giving it effective joint control with Dongfeng Motor.

Volvo is currently ranked third behind Dongfeng and Daimler but the tie-up will give the venture top spot.

In 2011 Volvo produced 180,000 units, 6,000 fewer than Dongfeng, but a large part of the Chinese firm’s production will pass to the new subsidiary.

Another Chinese automaker, Geely, owns Volvo Cars, bought from Ford Motor in 2010, but it has struggled to boost profits as the brand’s market share has fallen.

AFP/The Local/og

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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.

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