Volvo to sell $2.3 billion of Japan’s low-margin truck business to Isuzu

Sweden’s Volvo AB will sell its UD Trucks business based in Japan to Isuzu Motors in a deal worth about $2.3 billion, withdrawing from a low-margin market and boosting its cash pile as a high-tech trucking heat rivalry.

The contract, revealed on Wednesday by the firms, is part of a broader partnership that will see them share advanced electric and self-driving truck technologies and use their collective heft to reduce development costs.

In the morning trading, Volvo shares rose 5 per cent. During hours of trading in Tokyo, Isuzu shares had risen 3 per cent.

The alliance is the latest in a growing trend of vehicle manufacturers joining forces to compete better in an industry that is booming with the growth of electric vehicles, self-driving cars and other new technologies.

Volvo said the deal would add about 2 billion SEK ($208 million) to its operating income and raise its net cash by 22 billion SEK.

The Japanese trucking market is very competitive and not very lucrative, analysts said, so the UD Trucks sale will free up cash for Volvo as it competes with the Daimler from Germany, the Tata Motors from India and the Dongfeng Motor from China.

Volvo is one of the largest heavy-duty truck manufacturers in the world and owns brands including Volvo Trucks, Renault Trucks from France, and Mack Trucks from the U.S.

“This is a way to focus the company where they are strong and make good money, and at the same time exit with a small profit,” Hampus Engellau, an analyst at Handelsbanken Capital Markets, told Reuters.

Isuzu specializes in light to medium trucks, while UD Trucks are powerful in both heavy and mid-duty to some degree.

The deal is expected to be completed by the end of 2020, consolidating a sluggish truck market dominated by Toyota-owned Hino Motors in Japan.