fbpx

UNDERSTANDING NEIGHBOURS | TRANSPORT NEWS

UD Trucks and Isuzu Motors Japan prepare to join forces

As we head into the New Year, PowerTorque has been advised of the creation of a non-binding Memorandum of Understanding with the intent to form a strategic alliance within commercial vehicles in order to capture the opportunities in the ongoing transformation of the industry.

The two parties are the UD Trucks Division of Volvo Group and Isuzu Motors of Japan, and from early reports it appears that both companies have decided the way forward is to investigate the benefits from teaming up and sharing the synergies of similarity wherever they exist. This scenario appears preferable to that of each party fighting individually for survival in a market in which it grows more difficult to compete against increasing competition from China, India and South Korea.

In a first step, the communication from both UD Trucks and Isuzu Motors states the intention is to establish a global technology partnership and to create a stronger, combined heavy-duty truck business for Isuzu Motors and UD Trucks in Japan and across international markets.

This will entail transferring ownership of the complete UD Trucks business globally from the Volvo Group to Isuzu Motors in order to accelerate growth by leveraging greater volumes and complementary capabilities. There is great complementarity between the two groups from both a geographical and product-line perspective, with further opportunities to be explored over time.

This move has prompted Volvo Group Australia to reaffirm its support for the UD brand, with an official statement that as part of the intent, it will continue to distribute the UD brand and support UD Trucks Australia customers and dealer business partners.

The enterprise value for the complete UD Trucks business is about $AUD3.33 billion (at the end of November 2019) and will be subject to the final scope of the business transferred and Isuzu Motor’s due diligence. The transaction is expected to, at the time of closing, result in a positive impact on the Volvo Group’s operating income of about $AUD300 million and increase the Volvo Group’s net cash position by about $AUD3.37 billion.

“The Volvo Group and Isuzu Motors have a well-established relationship on medium-duty trucks in Japan based on mutual respect, shared values and win-win spirit. We see great potential to extend our cooperation within technology, sales and service as well as other areas going forward, for the benefit of our customers and business partners,” says Martin Lundstedt, President and CEO of the Volvo Group.

“Our UD Trucks colleagues have done a great job to improve performance in recent years and the alliance opens up a great opportunity to continue the successful journey.

“Isuzu Motors and the Volvo Group strongly believe in the business opportunities and synergy potential between the two groups. We intend to derive the full value from each other’s different specialties across product and geographical strongholds. Our collaboration will actively contribute to service improvements and strengthened customer satisfaction as well as to prepare ourselves for the forthcoming logistics revolution,” said Masanori Katayama, President and Representative Director of Isuzu Motors Limited.

The intended strategic alliance between the Volvo Group and Isuzu Motors will include:

  • Forming a technology partnership, which will leverage the parties’ complementary areas of expertise within both well-known and new technologies, as well as to create a larger volume base to support necessary, forthcoming technology investments.

 

  • Creating the best long-term conditions for a stronger heavy-duty truck business for UD Trucks and Isuzu Motors in Japan and across international markets.

 

  • Exploring opportunities for even broader and deeper collaboration within the commercial vehicle businesses across geographical areas and product lines, such as light- and medium-duty trucks.

All technology cooperation between the Volvo Group and Isuzu Motors will be managed through individual contracts.

The Memorandum of Understanding is non-binding. The next steps will be finalising the scope of the business to be transferred, due diligence by Isuzu Motors and negotiations of binding agreements. Signing of binding agreements is expected by mid-2020 and closing of the transaction is expected by the end of 2020. All potential transactions will be subject to regulatory and other approvals.

While it all sounds initially quite a sound investment in effecting a strong future for the UD and Isuzu Truck brands, there are other influencing factors that may come into play here.

Back in 2013, Volvo announced it would surpass Daimler as the world’s biggest maker of heavy trucks after agreeing to set up a joint venture with Dongfeng Motor Group in China (Reuters). Prior to this timing, in 1996, the company was known as Dongfeng Nissan Diesel Motor Co. Ltd. UD, which subsequently became part of Volvo Group, held 50 percent of the shares.

Volvo Group reportedly paid $AUD1.3 billion for a 45 percent stake in the joint venture, giving it access to China. Dongfeng is the world’s second largest producer of heavy-duty trucks and China’s biggest, with total production currently of 140,000 units. This JV took two years to come to fruition and was ratified in February 2015.

“Volvo will provide technological support and share its global sales experiences,” said its (then) president and CEO Olof Persson.

He said a deal was made to transfer Volvo’s technology for manual transmissions for heavy-duty trucks into the joint venture. He added that these would be produced in Shiyan.

“We believe that in 10 to 15 years Dongfeng will deliver the best and latest technology to customers in the Chinese and overseas markets,” said Persson.

By January 2019, the JV between Volvo Group and Dongfeng trucks had moved forward with the launch in China of the Dongfeng new generation of trucks. Called the Dongfeng KL and Dongfeng KR, the new generation trucks feature two brand-new truck platforms designed for its customers over five years of research and development.

The sale of UD Trucks is expected to free up cash for Volvo as it competes with Daimler, India’s Tata Motors and also Dongfeng Motor, with the deal expected to be completed by the close of 2020. For Isuzu, the partnership will offer access to Volvo’s electric truck technology which has already been deployed in distribution and waste-disposal trucks.

The teaming up of global competitors in the auto industry is no longer a rarity. For example, Toyota has teamed with Suzuki, Mazda and Subaru through partnerships and equity stakes. Ford has joined with Volkswagen, while Honda and General Motors are also working together, as are Nissan, Renault and Mitsubishi and also Mazda with Isuzu Ute.

Just to complicate matters further, Hino Motors and Isuzu Motors have a joint bus-making venture that dates back to 2004 that underwent a 30 percent expansion in production in October 2016.

Meanwhile the Traton Group – the emerging mega-manufacturer that incorporates Volkswagen Truck and Bus with International Navistar, MAN and Scania – has announced a strategic partnership with Hino Motors to develop e-mobility initiatives.

Toyota is known to be discussing options on how to possibly combine manufacturing operations in North America of Hino Motors and Isuzu Motors. If this goes ahead it will be to aim for manufacturing cost reductions due to the lack of suitable volumes for either manufacturer to go it alone and not at this stage for a combination of the brands.

Rest assured, PowerTorque will continue to monitor developments and report major industry changes to our readership as and when they occur.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

This site uses Akismet to reduce spam. Learn how your comment data is processed.

x

Check Also

THE TRANSPORT TASK | Truck Review – Isuzu Trucks

Isuzu Trucks celebrates three decades of transport success Isuzu Trucks Australia has been the market ...