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August 24, 2009

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Home » Business » Auto

Talks on truck venture to tap sector

CATERPILLAR and Navistar International Corp are in talks with China's Jianghuai Automobile to set up a truck venture, a source said, as the firms become the latest foreign players to tap the market.

The two United States companies hope to gain a foothold in China's 150 billion yuan (US$22 billion) heavy truck market, joining Daimler AG, MAN and others which recently tied-up with local partners.

The Chinese government's stimulus measures aimed at supporting a recovery in the world's third-largest economy is already fuelling a boom in the retail automobile industry.

"The parties have basically agreed on the framework for a 50-50 venture to make heavy trucks and engines, but have yet to iron out the details," a source with direct knowledge of the matter has told Reuters.

Caterpillar and Navistar would hold a 50 percent stake in the venture, with Jianghuai owning the remainder, said the source who did not wish to be identified as he was not authorised to speak to the media.

A spokesman with Anhui Jianghuai Automobile Co, a mid-size auto maker, based in east China, declined comment, while Caterpillar and Navistar executives could not be reached.

Analysts said the JV, expected to be finalized before the end of this year, offers Caterpillar and Navistar a chance to tap China's heavy truck segment.

Heavy truck sales in China rose 11.75 percent to 541,256 units last year, more than double the level in 2003, according to Nomura Securities.

Sales are set to rise in the coming years, bolstered by Beijing's continuous efforts to improve the country's infrastructure, analysts said.

Unlike General Motors and Volkswagen which have long become household names in China, foreign truck giants have made little headway over the years as their upscale models are too expensive.

"Foreign truck makers face a much bigger challenge in China comparatively because an Audi is a status symbol, while a Volvo truck can only push up trucking firms' operating cost," said Chen Qiaoning, an industry analyst with ABN AMRO TEDA Fund Management.

The availability of indigenous trucks, costing one-third or less than imported models, was also cited as a hurdle.


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