SHANGHAI: Volvo AB has agreed to withdraw from its truck venture with the State parent of Sinotruk, moving closer to a possible tie-up with Dongfeng Motor Group Co, sources familiar with the situation said yesterday.

The move, which follows Sinotruk's new $800 million tie-up with Europe's MAN, could spur a partnership between Volvo and Dongfeng, another source with direct knowledge of the situation told Reuters.

Spokesmen for Volvo and Dongfeng could not be immediately reached for comment.

Both Sinotruk and Dongfeng Motor are listed in Hong Kong.

Volvo reached agreement with China National Heavy-Duty Truck Corp recently to pull out of their joint truck venture after production had been suspended for several years due to poor sales, a source at the Chinese truck maker said.

Dongfeng Motor, the country's third-largest automaker, had detailed discussions with Volvo years ago to bring the Swedish company into its vehicle venture with Nissan Motor Co.

Dongfeng said in January 2007 that talks with Volvo could lead to an investment by the Swedish company in that venture, whose operations include the manufacture of heavy- and medium-duty commercial vehicles.

Dongfeng said at that time that, if a deal were to go through, Nissan could focus on the manufacture of passenger cars and light commercial vehicles in the venture. "The two sides had no major disputes on most of the key issues at the time. The only obstacle was that Volvo had too many partners in China," said the second source.

Volvo makes buses on the mainland with SAIC Motor Corp, the biggest automaker on the mainland, and with Xi'an Aircraft Industry (Group) Co, parent of Xi'an Aircraft International Corp.

However, its venture with China National never gained much traction, producing little more than 1,000 vehicles since it was established in 2003, according to its Chinese partner.

Reuters

(HK Edition 07/23/2009 page4)