The Chinese market is huge – larger than the North American and European markets combined. This is why it is so important for the major European manufacturers to gain a solid foothold in the country. In 2012 there was a massive 636,000 heavy trucks sold in China. Through their joint venture with Dongfeng Motor, the Volvo Group will not only be selling trucks in China, but aggressively exporting them to other emerging markets, where premium European products are cost prohibitive.
It will cost Volvo up to $600m to take a 45 per cent stake in the new venture, which includes the majority of Dongfeng’s annual output of 180,000 trucks – a boost since both US and European markets currently remain flat at best. This geographical growth should further protect the business from the massive cyclical swings in sales in Volvo’s major markets.
The joint venture still requires approval from the Chinese government, which is likely to take some time.