The global truck market was collectively shocked when Volvo announced it was selling UD to Japanese truck maker Isuzu back in 2019 a move that has left many industry strategists scratching their heads.
However, what if a bigger play was in train and Volvo’s move was to facilitate a consolidation of Japanese based assets with the view to eventually take over the much larger target, Isuzu itself?
We know it sounds ridiculously outlandish and unlikely, however snippets of information from a range of sources leads us to believe that something bigger might be on the boil with a Volvo Isuzu tie up.
In a world where consolidation and alliances are the cornerstone of corporate philosophy across the automotive, and in particular the truck industry, we have seen the global truck industry distil down to four major groups, dominated by Daimler, the world’s largest truck maker.
Daimler has become the World’s largest truck maker thanks to its huge footprint in North America with Freightliner, Western Star and Detroit Diesel, its alliances in China and Asia with Fuso and Foton, and of course a large footprint in Europe via Mercedes Benz.
The other three major truck groups, VW’s Traton, Paccar and of course Volvo have grown on the back of buying up brands and consolidating them with shared drivelines, technology and buying power.
The architect of Daimler’s global plays, Andreas Renschler, was the person responsible for buying the US brands Freightliner, Western Star and Detroit Diesel, which have given Daimler the top spot in the most lucrative truck market in the world and has led other groups to do similar things.
After leaving Daimler, Renschler bobbed up with Volkswagen and became the father of that company’s plant to create a separate truck entity in the form of Traton, rolling VW’s Scania, MAN and its South American commercial vehicle operation, Volkswagen Caminhões e Ônibus into a single corporation, which they then floated on the stock market, netting a huge windfall for a minority share in the business. It gave Traton a $US 4billion war chest to allow it to establish a footprint in the US where it had no real presence.
To facilitate this it bought 100 per cent of the troubled Navistar Corporation and its International brand . This mirrored Renschler’s strategy when he was at Daimler, for without a presence in America no truck maker can hope for global supremacy.
So what of Isuzu? Where does all this alignment and consolidation leave the largely independent Japanese truck maker, which hasn’t had a major alignment since General Motors started to sell down its share in the company in the early 2000s, and offloading the last 7.9 per cent it had in Isuzu in 2006.
At the turn of the millennium GM had owned as much as 49 per cent of Isuzu and GM was also Isuzu’s biggest customer, supplying GM subsidiaries with Isuzu diesel engines for models around the globe.
Without a major partner Isuzu has functioned just fine over the past decade or more, however the pressure is now on. Those massive costs are sending financial tremors through the largest truck groups. So how does a smaller Japanese truck maker and relatively small volume ute builder afford the massive development costs? Well it’s not easy.
One industry observer, who spoke on the condition of anonymity because of his ongoing position with a manufacturer, told Truck and Bus News that the difficulty that Isuzu has is that it is an unaligned truck maker and that it is struggling to allocate the money necessary to take it into a zero emission future.
“The interesting thing. The business is facing at the moment is different to the normal cycle of investing in R&D that has been the norm for decades,” said the industry observer.
“The thing is they have to spend a lot of money to develop what in many instances is new ground-breaking technology, it’s not like designing new emission reduction systems, or a better fuel injection system or the like, it’s about a whole new way of thinking and is requiring substantially larger investment in R&D,” he said.
“However, more significantly, the move to zero emission will mean you need to come up with a different business model for the future, because by developing zero emission trucks you are actually unpicking a large part of your revenue streams.”
“The reality of a move to zero emission drive trains is that you will lose a huge slab of your revenue, because electric trucks will need far less servicing, a lot less parts and a very different approach.
“Truck and car companies make a huge amount of money from parts and service and it is clear that the revenue from this will be a fraction of what it currently is, once zero emission becomes the norm,” our expert told us.
So just based on the fact that an electric truck will no longer need to have engine oil changes that alone on current values would mean a loss of close to $AUD30 million in revenue per year on oil changes alone.
That is why even the biggest truck makers are cosying up to develop new technologies , as witnessed by the joint venture between Daimler and Volvo Group to develop hydrogen fuel cell technology, the MOU signed between Traton and Toyota/Hino for similar zero emission development and Paccar’s alignment with Toyota and its fuel cell technology.
Isuzu has entered a number of tie ups with various companies that only stirs the water up even more and making for even murkier and uncertain motives. For instance Isuzu has inked a deal with US global diesel engine giant, Cummins, with Isuzu set to supply smaller diesel engines, under three litres to the US engine maker, while Cummins will market those Isuzu powerplants under its brand and provide Isuzu with larger engines. Cummins is also focussing on developing zero emission drivelines, which clearly could also provide Isuzu with some electric options.
As well as that, Isuzu has also signed a deal with its chief Japanese rival, Toyota/Hino.
Under the deal, Toyota has acquired 39 million treasury shares in Isuzu, worth $AUD 519 million (42.8 billion yen), and has taken a 4.6 per cent stake in the Japanese truck maker. Japan’s more liberal laws on corporate tie ups and alignments make this possible, where it would struggle under US anti-trust rules or ASIC oversight in Australia.
In fact Toyota and Isuzu dissolved a previous, 12-year capital tie-up in 2018 that had focused on diesel engines.
The move came as traditional automakers face growing competition from tech giants and other rivals developing electric and driverless vehicle startups.
Toyota president, Akio Toyoda said the push for electric vehicles and carbon neutrality gave the companies a reason to get together again.
“We had tried to jointly develop small diesel engines together… but we didn’t really identify specific projects much, and we decided to split and find our own ways,” Toyoda told a news conference at the time.
“But then EV became a new common ground for us again, where common research and development could take place,” he added.
The new partnership with Hino made “perfect sense for our customers,” said Isuzu, president, Masanori Katayama, adding that the two companies account for 80 per cent of the commercial vehicle market in Japan.
As T&B News said at the time, the interplay between rival truck makers is getting like a 70s swingers party, with no one certain whose keys will be plucked from the bowl when the party finishes.
So with all of that, why would Volvo look to buy Isuzu? Well for a start, while Volvo is one of the dominant force in heavy duty trucks it has minimal foot print in the light and medium sectors, save for in Europe. In the USA, Asia, South America and Australia, Volvo and its main subsidiary brand Mack are all about heavy trucks. That is a big gap in Volvo’s global marketing arsenal and one that its main rivals Daimler, Traton and to a lesser extent Iveco have plenty of weaponry for. While the big profits are in heavy duty, light and medium provide the volume that is also important.
Volvo may have sold UD to Isuzu in a very profitable move and forged a tie up with the company, however, the price Isuzu paid may be just be the sort of weight on a balance sheet that will give Volvo the chance to make a major play for a consolidated Isuzu UD group at a discount price. It may not be a total takeover in the way Traton bought 100 per cent of Navistar, but it may be a controlling shareholding.
There is some evidence that Volvo is already exercising some influence and power on Isuzu with T&B News becoming aware of situations where Volvo has apparently vetoed potential Isuzu engineering collaborations. We must emphasise these are only hearsay and have no real back up or proof, however they have come from two different sources, and often in these circumstances, where there is smoke there is often fire.
Time will tell if Volvo does eventually become the overlord of Isuzu longer term, but in a world that has seen some massive shifts in truck manufacturing and the re alignment of truck groups as well as the upheaval in the way we propel trucks and buses, nothing can be considered off the table.