In the latest realignment in the global automotive industry, Mitsubishi Motors Corp. and AB Volvo of Sweden will form a strategic alliance in the field of trucks and buses that includes a capital tieup, top officials of the two firms announced Friday.

The two firms reached a basic agreement to take a 5 percent stake in each other’s firm as a way to reinforce their partnership in developing, producing and marketing trucks and buses worldwide. MMC and Volvo have previously been involved in business tieups in the fields of passenger and commercial vehicles.

“We will mutually own shares to further strengthen our business partnership,” MMC President Katsuhiko Kawasoe said. “With the tieup with Volvo, we will create the world’s largest maker in the truck segment.”

The combined production of buses and trucks by the Volvo group and MMC in 1998 exceeded 250,000 units.

Under the agreement, Volvo will acquire a 5 percent stake in MMC by purchasing 48,516,000 new shares through a third-party allocation, which is estimated at 2.9 billion yen.

Meanwhile, MMC will gradually gain its 5 percent stake in Volvo by the end of 2002 by buying outstanding shares in the company.

As a step toward the strategic alliance, MMC will make its truck and bus division an in-house company as of April 1 and set up a new firm by the end of 2001 to take over the in-house company. Volvo will then acquire a 19.9 percent stake in the new company.

The two firms plan to work out the details of the agreement by the end of the year.

Volvo President Leif Johansson stressed that the proposed alliance with MMC can produce synergistic effects in terms of product lineups and regional strength.

“Volvo has long held strong positions in trucks and buses in Europe, North America and South America,” he said. Through the alliance, “the Volvo group can strengthen a position in Asia. We have close cooperation with Mitsubishi Motors. It is a natural step to form the alliance.”

Volvo, which plans to buy Swedish truck maker Scania AB, holds a strong share of the heavy truck segment, while MMC has expertise in small and medium-size trucks.

However, Johansson said the capital tieup is limited to commercial vehicles, and Volvo has no intention of getting into MMC’s passenger vehicles segment. Volvo has withdrawn from the passenger vehicle business since selling the business to Ford Motor Co. of the United States.

In a related development, MMC’s Kawasoe said the automaker plans to reorganize itself under a holding company if the legal environment allows.

Hit hard by the stagnant domestic economy and the economic crisis in Asia, MMC faces the task of improving its passenger vehicle division and is exploring the possibility of teaming up with other partners.

“We need to select (businesses) and focus (corporate resources on the selected fields). We cannot help separating a segment in which we cannot make profits,” Kawasoe said.

In the business year that ended last March, MMC posted 3.5 trillion yen in sales and made 5.7 billion yen net profit on a consolidated basis.

The Volvo group manufactures trucks, buses, construction equipment and marine and industrial engines. Its sales totaled $14 billion in 1998.

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