The world's second-largest truck company, Volvo AB, has agreed to buy Nissan Diesel Motor Co. for $1.1 billion in a bid to gain a greater foothold in the booming Asian market. Asia has been a weak spot for Volvo thus far, comprising just seven percent of its sales in 2006. By buying Japan's fourth largest truck producer, Volvo should be able to establish a far more secure position through Nissan's regional brand name and production capabilities.

Shares were up slightly in Volvo and hugely in Nissan Diesel indicating the market's largely positive acceptance of the news. The purchase will also give Volvo access to technology Nissan Diesel has developed to reduce engine emissions, a fact that is likely to gain importance as more countries implement stringent clean air legislation. Other synergies are likely to follow with Nissan Diesel having said that it should be able to bring down purchasing costs by as much as 20 percent per annum by joint purchasing parts with Volvo. On the drawing board for the combined companies is a jointly developed diesel-electric hybrid powertrain and research into alternative fuels including ethanol.

Analysis: This type of consolidation is increasingly likely over the coming years as the cost of R&D on next-generation powertrain technologies increases. Good to see plans to bring more diesel-electric hybrid trucks to market.

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[Source: Bloomberg]


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