In a move that has taken the truck market by surprise, Volvo has announced that it has agreed to sell its Japanese subsidiary UD Trucks to rival Japanese truck maker Isuzu for about $US 2.3 billion, while also announcing plans to forge a strategic alliance with Isuzu.

The move has shocked the industry given Volvo has continued to talk up its investment in UD and initiated a major consolidation of the product range and manufacturing arrangements both in Japan and in South East Asia in recent times.

The deal, announced by the companies last night Tokyo time, is apparently part of a broader alliance that will see Volvo and Isuzu share advanced technology for electric and self-driving trucks and use their combined weight to cut development costs.

The sale will consolidate what is seen as a stagnant truck industry in Japan which is dominated by Toyota’s Hino Motors brand.

“We will lean on each other’s strengths, pool from each other when it comes to technology, and leverage our larger volumes,” Volvo Group President and CEO Martin Lundstedt told reporters in Tokyo.

The sale of UD is another sign that the global automotive industry and in particular the truck industry is undergoing significant realignment with a number of strategic alliances and technical cooperations being forged in recent times.

Volvo completed the acquisition of UD, or Nissan Diesel as it was known as, on 1st April 2007 having paid about $US785 million for the remaining 77 per cent of the share register it had to acquire to give it a 96 per cent holding in the company.

Volvo at the time spruiked the purchase as a vital strategic move into Asia with then CEO Leif Johansson promoting the concept that Asia and China were important markets for Volvo to have a footprint in.

“Following the acquisitions of Nissan Diesel, Lingong and Ingersoll Rand’s road development division, we now have a significant industrial structure in Asia, with a presence in Japan, China and, when the expected cooperation with Eicher is in operation, also in India. These are rapidly growing markets and we want to be part of that growth,” said then CEO, Leif Johansson in the 2007 Volvo Group annual report.

Its not known how much Volvo has invested in UD in the 12 years it has owned the company, but on paper the roughly $US1.415 billion paper profit on the sale of the asset has been seen as a major boost for Volvo Group with its shares rising 5 per cent on the back of the announcement while Isuzu shares gained 3 per cent on the Tokyo market.

“Amid this once-in-a-century industry shift, there are many partnerships, but an alliance between commercial vehicle makers is the most efficient,” Isuzu Motors president, Masanori Katayama said.

Volvo and Isuzu said they expect to complete the deal by the end of next year.

The purchase of UD will give Isuzu access to vital engine and drive technology which it appears to have been struggling to gain, while the sale will boost Volvo’s bottom line and give it more cash to advance its autonomous and zero emission R&D.

Its latest sign of consolidation in the global automotive industry.

As electric, hydrogen fuel cells, autonomous and new mobility technology is disrupting the industry, automotive companies large and small have been forging alliances to enable them to economically develop the new tech to cope with the changes on the horizon.

Toyota’s truck company Hino has signed MOUs with VW truck operation Traton, while Toyota itself has forged cooperation agreements with, Mazda and Subaru through both partnerships and equity stakes.

Agreements like these are becoming ever more critical in the global auto industry as manufacturers seek to pool resources and save costs.

Ford has also teamed with VW while Honda has signed an agreement with GM to work together on new drive technologies.

UD’s sale will immediately boost Volvo Group’s operating income by about $US212 million and increase the Swedish company’s cash position by $US2.3 billion.