Volvo & Dongfeng to set up JV

Swedish automaker Volvo Group is said to have resumed the talks with Chinese carmaker Dongfeng Motor Corp. about a commercial vehicle joint venture.

They have entered into an initial agreement on the reservation of the Chinese company's production base in Shiyan, Hubei Province, revealed insiders, adding Volvo had agreed with Dongfeng Motor to reserve the car body and suspension unit as well as other supporting units of Dongfeng Motor's commercial vehicle division in Shiyan.

Even in that case, the cost will be still considerably high to move the assembly unit and engine unit of the Chinese carmaker's commercial vehicle division to the new production base in Wuhan, capital of central China's Hubei Province.

They are expected to ink a formal contract on the venture in Sweden in May 2008 in line with a MoU signed by both parties, revealed insiders.

The venture will be mainly engaged in the manufacture of Volvo-branded heavy-duty trucks and Dongfeng-branded medium- and heavy-duty trucks, added the insider. Volvo may gain a stake in Dongfeng Motor by acquiring some from the Chinese company's Japanese partner Nissan Motor in accordance with the MoU.

It may also set up the venture with Dongfeng Motor on the name of its truck unit, forecasted the insider.

The joint venture with Volvo is expected to be set up as early as this year, according to insiders.

Dongfeng Motor Group Co., Ltd., a listed arm of the Chinese automaker, announced in early 2007 that Dongfeng Motor was in talks with Volvo about a commercial vehicle venture.

However, the talks were suspended because both sides could not reach an agreement on problems like the brand of vehicles produced by the venture.

The cooperation with Volvo is aimed to strengthen the production base in Shiyan, said Xu Ping, general manger of Dongfeng Motor, adding Volvo's requirement for Dongfeng Motor to set up a new commercial vehicle division and move it out of Shiyan had went against the company's initial intention to establish a partnership with the Swedish automaker.

Besides, Volvo asked Dongfeng Motor to use the brand Dongfeng on the medium- and heavy-duty trucks produced by the venture, which will hinder the development of Dongfeng Motor's long-term development in the fields of other kind of trucks.

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