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Volkswagen considering China heavy-duty truck JV

Volkswagen AG is studying the possibilities of establishing a heavy-duty truck joint venture in China, according to Jochem Heizmann, president and CEO of Volkswagen Group China.

Heizmann made the comments in an interview with a Chinese media delegation on March 13 in Berlin after the German automaker released its 2013 financial results.

Ripe time for a JV?

Volkswagen, Europe’s largest automaker and potentially the world’s largest this year, sold more than one-third of its vehicles in China in 2013. However, nearly all of those sales were passenger vehicles. To achieve “Strategy 2018,” Volkswagen’s long-term strategic plan, a breakthrough in the short board of commercial vehicles is needed.

With the acquisition of German truck maker MAN plus activities of its other heavy-duty subsidiary, Swedish truck and bus maker Scania AB, Volkswagen suddenly makes its presence felt in China as an important heavy-duty truck player.

Volkswagen is in the process of acquiring full control of Scania. The German giant, which directly and indirectly owns 62.6 of the capital and 89.2 percent of the voting rights of Scania, plans to buy out minority shareholders for €6.7 billion.

Scania exports trucks and buses to China and has a partnership with King Long United (Suzhou) providing chassis technology for the Higer bus. MAN has a 25 percent plus one share in Sinotruk, the Hong Kong-listed subsidiary of China National Heavy-Duty Truck Group Corp. (CNHTC), China’s third largest heavy-duty truck maker. MAN has also licensed technology for trucks made by Shaanxi Automobile Group and buses made by Yutong, Youngman and Huanghai.

Volkswagen recently hired former Daimler trucks chief Andreas Renschler as the Group’s new board member in charge of commercial vehicles effective February 2015. As an experienced veteran that was in charge of Daimler Trucks, the world’s largest truck maker for many years, Renschler played an important role in the establishment of Daimler’s truck joint venture with Beiqi-Foton, the first of its kind in China. That experience will be extremely valuable if Volkswagen were to get serious in looking for a heavy-duty JV partner.

The current Volkswagen board member in charge of China, Jochem Heizmann, was previously in charge of the Group’s commercial vehicle business. That combined with Renschler’s experiences and knowledge about the Chinese market would be added pluses as Volkswagen ponders about a possible heavy-duty truck JV.

Potential partners

According to industry policy, each foreign automaker can have at most two vehicle assembly JVs separately in the passenger vehicle and commercial vehicle sectors. Volkswagen AG already has two in the passenger vehicle sector, namely FAW-Volkswagen and Shanghai-Volkswagen (the former with FAW Group and the latter with SAIC Motor).

FAW Group and SAIC Motor could be the priority among Volkswagen’s partner choice list in consideration of their long-term cooperation with Volkswagen. However, the weak heavy-duty business of SAIC Motor and the battle of JV equity shares between FAW and Volkswagen are all hurdles between them in setting up a heavy-duty truck JV. SAIC Motor already has a heavy-duty truck JV with Italian heavy-duty truck maker IVECO in SAIC-IVECO-Hongyan.

CNHTC has had a cooperative relationship with MAN for many years and could also be a front runner as a potential partner for a heavy-duty truck JV with Volkswagen.

Challenges ahead

The establishment of Sino-foreign JVs in China’s heavy-duty truck sector has intensified in the past few years. CNHTC and MAN, Dongfeng Commercial Vehicle and AB Volvo, Beiqi-Foton and Daimler, SAIC and IVECO, JMC and Ford, JAC and Navistar, GAC and Hino, and even Sichuan Nanjun and Hyundai have all established heavy-duty truck JVs in China. The JAC-Navistar JV, which is still waiting for government approval several years after the signing of a JV agreement, as well as the cutthroat competition cast a shadow for late comers such as Volkswagen that plan to join the fray.

For Volkswagen, it will be a lot more difficult to repeat its success in the passenger vehicle side of the business in its commercial vehicle business, both globally and in China. China’s heavy-duty truck market is dominated by Chinese brands, unlike in the passenger vehicle sector where Volkswagen is the leader. Therefore it has to play catchup. Furthermore, China’s heavy-duty truck market is becoming saturated and it is unlikely that Volkswagen can compete with price. Then there is the issue of whether it makes business sense to produce high-end trucks, which MAN and Scania mostly produces, at the JV when the volume is minimal compared with the overall market. Volkswagen’s path toward a heavy-duty JV in China could be very bumpy in a fierce competitive environment.  

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