Monday, 6 October 2014

Where now for Volvo and Dongfeng?

Observers are watching with interest, now that Volvo's 45 per cent stakeholding in Dongfeng Commercial Vehicles Co. Ltd. is official, to what extent the Swedish company will be able to influence senior executives in the Chinese truck maker, which has been in business since 1969.

The more so since Cummins Inc. of the US and Dongfeng have a 50-50 joint venture company, Dongfeng Cummins Engine Co. Ltd. Also Knorr-Bremse Commercial Vehicle Systems is expanding in China by taking a 51 per cent stake in Dongfeng Electronic & Technology Co. Ltd to make parts for commercial braking systems.

The Chinese company is part of Dongfeng Motor Company which employs 30,000 people and has sales of USD74 billion, but the link-up with Volvo, which has seen its car company acquired from Ford Motor Company in 2010 by Zhejiang Geely Holding Group, which owns Geely Automotive holding Group in China, has huge long-term implications, especially in the area of commercial vehicle diesel engine design, development and, above all, manufacture. This could involve materials development as well as strategic engine component suppliers.

In the meantime, the avowed claim of Dongfeng Commercial Vehicles, following the link-up with Volvo, is to "jointly develop new trucks, new engines that can meet the latest emissions standards, as well as transmissions, all under the Dongfeng brand," noted Zhu Fushon, Dongfeng's President earlier this year. He added, ominously perhaps, that Dongfeng and Volvo "will share resources, suppliers, manufacturing and international sales". Clearly, Volvo and Knorr-Bremse likewise will be working closely with Dongeng to develop new products that incorporate European technology. No doubt, other European suppliers will join them.

To what extent Cummins Inc. plays a part in this new Volvo-Dongfeng alliance remains to be seen. However, as visitors to the IAA in Hanover were able to observe, Cummins and Dongfeng are going strong with the U.S. company's 13-litre 425bhp diesel engine powering the new Dongfeng KX heavy duty tractor; the KX being part of a family of K-range vehicles which includes the KL heavy long-haul unit, KC construction vehicles, and the KR medium haul vehicles.

At present, Dongfeng Commercial Vehicle does not represent a threat to Volvo's market share in Europe; nor for that matter are the products from the Cummins-Dongfeng alliance likely to damage Cummins's European market in the near term. The main interest of both activities - at the moment - is centred firmly on China and nearby territories. The markets there are large. In the first half of 2014, Dongfeng sold 81,500 vehicles; so there is still plenty to scope without devoting too much time to regions farther afield.

But looking further ahead, certain issues will have to be addressed because no doubt Dongfeng's senior executives will be taking "the long view" and will wish to make serious in-roads into Europe and possibly even North American markets At present, Dongfeng does not have in-house engines to meet European and U.S. emissions standards. But that day will come and serious marketing issues will need to be addressed.

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