Volvo's bumpy road

It looked as if Leif Johansson had a clear strategy two years ago when he sold AB Volvo's car operations to Ford Motor Co. In the wake of the $6.5 billion deal, Volvo's chief executive would use his considerable cash reserves to invest in medium and heavy trucks and buses.

No one is sure Johansson got it right. As the world's second largest truckmaker, Volvo is an active participant in that industry's consolidation. But it is hard to see what Johansson achieved or where he goes from here.

First, Volvo made a hostile bid for rival Swedish maker Scania. When the two finally agreed to merge, Volvo owned 45.5 percent of Scania's shares and 30.6 percent of the voting rights. But the European Commission vetoed the merger last year because it was anti-competitive.

That was Johansson's first setback. The commission ordered Volvo to sell its Scania shares by the end of 2003. Volvo's problem: It bought them at an average of $24.70 each. Now those shares are worth less than $16 each - a 12-month low.

More conditions

Neither is Volvo allowed to take part in Scania's management. To expand its presence in Asia, Volvo made an alliance with Mitsubishi Motors to produce trucks. But Volvo was outmaneuvered by DaimlerChrysler, which proposed a bigger, broader takeover of Mitsubishi cars and trucks. That was the second setback for Johansson. Volvo was obliged to sell its 3 percent share of Mitsubishi for $278 million.

Suddenly, cash-rich Volvo needed protection from potential predators. Into the fray stepped Louis Schweitzer, Renault's visionary chief executive. The two companies had tried to merge in 1993. The deal was rejected by Swedish shareholders. But Schweitzer is a patient man. In April, he agreed to swap Renault's truck business for a 15 percent share of Volvo plus an option for another 5 percent. The deal did not include Renault's bus operation.

Once again, the European Commission stepped in. The commission decided Volvo already was powerful enough in this sector. So it decreed that IrisBus, a 50-50 joint venture between Renault and Fiat's Iveco, should be wholly owned by Iveco.

That was another setback for Johansson. Worse yet, it was a bad time to acquire Renault trucks. Europe's truckmakers expect sales to decline 8 percent to 10 percent next year. That is especially bad news for Renault, whose Mack Truck subsidiary is suffering plunging sales in the United States.

All of this makes Volvo shareholders nervous. Class B shares are less than $15 apiece, nearly 40 percent below their peak.

If that were not bad enough, Johansson still has a problem in Asia. Volvo cannot match DaimlerChrysler's truck-building alliance with Mitsubishi in Asia. And it is not clear what Johansson can do about it. To compete, he might bid for a struggling Japanese company such as Nissan Diesel.

Size matters

Outside Japan, Asia's truckmakers are too small and too regional to make a difference. But an alliance with Nissan Diesel would make Volvo still more dependent on Renault, which owns 22.5 percent of it.

That may be Schweitzer's goal. As analysts ponder the industry's prospects for the next 12 months, Schweitzer is focused on the next decade. He is the big thinker who turned a provincial French automaker into a global player through alliances.

Volvo is the answer to Renault's truck problem. Schweitzer knows Renault does not have a strong reputation as a truckmaker. He also knows Volvo's powerful reputation is fully justified. How much more sensible it would be for Volvo - and Mack - to represent Renault's international trucking interests? In effect, Volvo is Renault's trucking operation. Volvo is nominally independent, but Renault is its biggest shareholder.

When or if Volvo becomes vulnerable, one would expect it to seek help from Renault. Game, set and match to Mr. Schweitzer.

E-mail writer Richard Feast at RichardFeast@cs.com

You can reach Richard Feast at autonews@crain.com

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