Volvo Buys Minority Stake in Dongfeng to Expand in China image

Volvo will pay $890 million for a minority stake in Dongfeng Motor, a move which will make the Swedish company the biggest maker of heavy-trucks in the world.

“The alliance will help Dongfeng go outside of China, ” said Zhu Fushou, president of the Chinese company. “It will also help reinforce branding impact of Volvo in China.”

Volvo, which is currently the world’s second biggest truck maker, will own 45% of the Chinese company Dongfeng and will manufacture Dongfeng trucks, buses and the Gothenburg special-purposes vehicles. Volvo and other automakers plan to quickly expand in China, the market which grew the fastest over the past two years. Analysts expect truck sales to increase to 3.33 million this year, after two years of declines.

“China is the world’s largest truck market with a total market for heavy trucks equivalent to the European and North American markets combined,” said Olof Persson, chief executive officer of Volvo. “The venture will improve Volvo’s position in the Chinese market and help it to become more globally competitive.”

Dongfeng, which is the second largest automaker by sales in China, also manufactures passenger cars in joint venture with Nissan, PSA Peugeot Citroen and Honda. The Chinese automaker will have four places on the seven-member board of the JV, while Volvo will have three.