JV plans diesel engine production

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Last updated at: (Beijing Time) Tuesday, March 30, 2004

JV plans diesel engine production

Swedish truck maker Volvo Group yesterday signed a framework agreement in Beijing with two Chinese partners to set up a large-sized diesel engine joint venture in China.

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Swedish truck maker Volvo Group yesterday signed a framework agreement in Beijing with two Chinese partners to set up a large-sized diesel engine joint venture in China.

Under the agreement, Volvo, First Automotive Works Corp (FAW) and China National Heavy-Duty Truck Corp (CNHTC) will invest 2 billion yuan (US$241 million) in the engine joint venture, to be located in Jinan, capital of East China's Shandong Province.

FAW, China's biggest vehicle manufacturer based in Northeast China's Jilin Province, and CNHTC in Jinan, will control a combined 50 per cent stake in the joint venture, while Volvo will hold the remaining share, FAW President Zhu Yanfeng said yesterday.

The joint venture will start to produce Volvo's newly developed 9-to-13-litre diesel engines in 2005, which meet the European IV emission standard.

Its annual output will reach 50,000 engines by 2010.

The engines will be used in Volvo trucks to be produced in China as well as FAW's Jiefang (Chinese for liberation) brand truck, and for exports.

The agreement came nine months after Volvo and CNHTC announced plans to launch a 50-50 truck joint venture, named Jinan Huawo Truck Co Ltd, with a total investment of 1.6 billion yuan (US$193.4 million).

The first Volvo FM12 truck will roll off Jinan Huawo's assembly line tomorrow.

The truck joint venture's annual output will reach 2,500 units next year and 10,000 units by 2010.

"The agreement (of the engine joint venture) will provide Volvo with sufficient volumes and economies of scale to secure a strategic industrial base for diesel engines in China," said Volvo President Leif Johansson.

French automaker Renault, which controls a 20 per cent stake in Volvo, has agreed with Dongfeng Motor Corp to team up in truck production in South China's Guangxi Zhuang Autonomous Region.

German-US giant DaimlerChrysler will also form a truck joint venture with Foton, an affiliate of Beijing Automotive Industry Holding Corp to produce Mercedes-Benz trucks.

"Heavy-duty trucks have become a hot seller in the domestic vehicle market as a result of the booming logistical sector in China being boosted by the nation's fast economic growth," Zhu said.

Sales of heavy-duty trucks made in China stood at 26,700 units in February, an increase of 152.96 per cent from January or 65.35 per cent from a year earlier.

Analysts said the establishment of the engine joint venture will pave the way for FAW to directly team up with Volvo in truck manufacturing.

"FAW badly needs a strong new partner to enhance its competitiveness in the heavy-duty truck market, as its leadership is facing severe challenges from rivals and its negotiations with DaimlerChrysler have broken," said Jia Xinguang of China National Automotive Industry Consulting and Development Corp.

FAW and DaimlerChrylser last year failed to reach a joint venture agreement to produce Mercedes-Benz trucks because the latter was demanding a controlling stake and wanted the former to give up the Jiefang brand, which was created half-a-century ago.

The Chinese firm is building a new 100,000-unit manufacturing base with a total investment of 1.45 billion yuan (US$175.1 million) for the Jiefang brand in Changchun, capital of Jilin Province.

The new base will increase FAW's annual truck production capacity to 350,000 units. FAW sold almost 150,000 Jiefang trucks last year.

CNHTC, owned by the Shandong provincial government, said its sales are expected to reach 35,000 trucks this year.

Source:China Daily

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