Multinational manufacturer Volvo Group and vehicle manufacturer Isuzu Motors on Wednesday signed a non-binding memorandum of understanding (MoU) with the intent of forming a strategic alliance within commercial vehicles to capture opportunities within the industry’s ongoing transformation.

Next steps will be finalising the scope of the business to be transferred, due diligence by Isuzu Motors and negotiations of binding agreements.

Signing of binding agreements is expected by mid-2020 and closing of the transaction is expected by the end of 2020.

The MoU’s intention is to establish a global technology partnership and to create a “stronger, combined heavy-duty truck business” for Isuzu Motors and Japan-based vehicle manufacturer UD Trucks across international markets.

This will entail transferring ownership of the complete UF Trucks business globally from the Volvo Group to Isuzu Motors in orders to accelerate growth by leveraging greater volumes and complementary capabilities, a statement on Wednesday said.

According to the statement, issued by Volvo Group, there is great complementarity between the two groups from a geographical and product line perspective, with further opportunities to be explored over time.

The enterprise value for the complete UD Trucks business in JPY250-billion (about SEK22-billion at the end of November 2019) and will be subject to the final scope of the business transferred and Isuzu Motor’s due diligence.

The transaction is expected to, at the time of closing, result in a positive impact on the Volvo Group’s operating income of about SEK2-billion and increase the company’s net cash position by about SEK22-billion.

Commenting on the potential partnership, Volvo Group president and CEO Martin Lundstedt said that Volvo Group and Isuzu Motors have “a well-established relationship on medium-duty trucks in Japan based on mutual respect, shared values and win-win spirit”.

He added that the company sees “great potential” to extend its cooperation within technology, sales and service as well as other areas going forward, for the benefit of customers and business partners.

Lundstedt also commended UD Trucks on the improving performance in recent years, and highlighted that the alliance “opens up a great opportunity to continue a successful journey”.

The two companies intend to derive the full value from each other's different specialties across product and geographical strongholds. Their collaboration will “actively contribute to service improvements and strengthened customer satisfaction”, as well as to prepare themselves for the forthcoming logistics revolution, Isuzu Motors president and representative director Masanori Katayama said on Wednesday.

The intended strategic alliance will include forming a technology partnership and creating the best long-term conditions for a stronger heavy-duty truck business, while also exploring opportunities for broader and deeper collaboration within the commercial vehicle business across geographical areas and product lines, such as light- and medium-duty trucks. 

Additionally, the intention is to transfer ownership of the complete UD Trucks business globally, which had revenues totalling SEK24-billion in 2018.

All technology cooperation between the Volvo Group and Isuzu Motors will be managed through individual contracts.