Volvo Group has agreed to sell its UD Trucks unit to Isuzu Motors Ltd. for about $2.3 billion and announced plans to forge a strategic alliance with its Japanese rival, the latest sign of consolidation in the global automotive industry.
UD Trucks, based in Saitama, Japan, used to be part of Nissan Motor Co. before it was sold to Volvo more than a decade ago. Isuzu, which sold 530,000 vehicles last year, will acquire all of the truck-maker, the companies said in a statement Wednesday.
The deal will boost Volvo Group’s operating income by about 2 billion kronor ($212 million) and increase the Swedish company’s cash position by 22 billion kronor. Isuzu shares fell as much as 5.1 percent Thursday.
Isuzu specializes in light to medium-size trucks while UD Trucks have strengths in producing heavier vehicles, as well as mid-range trucks to a certain extent.
Volvo is among the world’s biggest makers of heavy duty trucks and owns brands including Volvo Trucks, France’s Renault Trucks and U.S.-based Mack Trucks.
The Japanese trucking market is very competitive and not very profitable, analysts have said, so the sale of UD Trucks is expected to free up cash for Volvo as it competes with Germany’s Daimler, India’s Tata Motors and China’s Dongfeng Motor.
“This is a way to focus the business to where they are strong and making good money, and at the same time exit with a small gain,” said Handelsbanken Capital Markets analyst Hampus Engellau.
The deal is expected to be completed by the end of 2020, and will consolidate a stagnant truck industry in Japan dominated by Toyota-owned Hino Motors.
As electric motors, autonomous capabilities and new mobility services disrupt the industry, automakers big and small have been forging alliances. Toyota Motor Corp. has teamed up with Suzuki Motor Corp., Mazda Motor Corp. and Subaru Corp. through partnerships and equity stakes.
Such pacts are becoming ever more critical in the global auto industry as manufacturers seek to pool resources and save costs. Ford Motor Co. has teamed up with Volkswagen AG, while Honda Motor Co. and General Motors Co. are also working together.
For Isuzu, a specialist in diesel engine technology, the partnership will also offer access to Volvo’s electric truck technology, which has already been deployed in distribution and waste disposal trucks.
“Amid this once-in-a-century industry shift there are many partnerships, but an alliance between commercial vehicle-makers is the most efficient,” Isuzu President Masanori Katayama told reporters.