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Mounting Losses Spur GM-Volvo Joint Venture for Heavy-Duty Trucks

August 16, 1986|JAMES RISEN | Times Staff Writer

DETROIT — With its losses mounting and market share plunging, General Motors all but pulled out of the heavy-duty truck market Friday, turning over its operations in that business to a joint venture managed by Volvo.

The new venture between GM and Volvo White, the Swedish auto maker's U.S. truck subsidiary, is likely to become the nation's second-largest heavy truck producer, giving the combined operations the marketing and manufacturing power to survive in an industry plagued by depressed prices and a glut of production capacity.

But GM, which said Friday that it had spun off its heavy truck business in order to concentrate its capital spending in other areas, will play only a minor role in the business. Volvo will manage the joint venture from Volvo White's headquarters in Greensboro, N.C., and will hold a 65% stake in the venture, to be known as Volvo GM Heavy Truck Corp.

Eliminate 1,600 Jobs

GM's only heavy truck assembly line in Pontiac, Mich., will eventually be shut down, eliminating 1,600 jobs, and production will be consolidated in Volvo White's existing plants in Virginia, Utah and Ohio.

Analysts said GM's move comes in response to a prolonged slump in heavy truck sales that has forced major truck makers to offer steep discounts while operating their plants at only about 50% of capacity. The sluggishness in the nation's manufacturing industries has reduced truck demand, while truck fleet buyers have been holding off on purchases until they see how investments in vehicles and equipment are affected by the tax reform legislation pending in Congress.

So industry analysts said GM's decision to shut down the Pontiac line should help reduce the competitive pressures on the surviving firms in the heavy truck market.

"This is part of the consolidation that the heavy truck industry needs," said Barry Mannis, a truck analyst at Shearson Lehman Bros. in New York.

GM executives conceded that the continuing slump in heavy truck sales convinced them they had to cut their losses. GM has watched its heavy truck sales slip to 11,632 last year from 15,004 units in 1984, while its market share has plunged to 6.3% today from 10.9% in 1984.

"It was difficult to justify the investments needed in this business," said Thomas McDaniel, group director for business planning at GM's truck and bus group. "So the intelligent way to go was to find a partner."

Analysts agreed that the joint venture plan provides a way for GM to cut back on spending on heavy trucks while continuing to share in any future profits.

More Attractive Option

"I think GM saw its market share shrinking and its heavy truck business losing money and thought this was a more attractive option than simply walking away from the business," said David Healy, automotive analyst with Drexel Burnham Lambert in New York.

GM officials said that the brand identities of both the GM and Volvo White truck lines will be retained but that some truck models may be dropped to streamline the joint venture's product lineup. The joint venture will also have to eliminate some of the 500 dealers that now carry either GMC or Volvo White heavy trucks, McDaniel said.

Volvo first entered the domestic truck market in 1981, when it acquired White Motor Co., a bankrupt heavy truck manufacturer that Volvo has since turned around. With Volvo's backing, Volvo White now has won about 10.5% of the market and has quickly become the fifth-largest heavy-duty truck maker in the United States.

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