Iveco, the commercial vehicle division of Italian industrial group Fiat, has pulled out of a bus joint venture in East China's Jiangsu Province, according to a source from the company's operations in China. The source told China Daily that Iveco had sold its 50 per cent stake in the bus venture to the Chinese side, Changjiang Bus Group, based in Changzhou, Jiangsu Province, for just US$1. "This has been approved by Chinese regulators and means we have severed our ties with Changjiang Bus," the source said. The move paves the way for Iveco's truck-making partnership with Shanghai Automotive Industry Corp (SAIC) China's top vehicle producer.

Last month, Iveco agreed with SAIC to form a joint venture and invested 120 million euros (US$151 million) in a new heavy-duty truck plant in Southwest China's Chongqing Municipality. The deal is awaiting government approval. Iveco also currently runs a light-duty truck joint venture with another Chinese automaker Nanjing Automobile Group in Nanjing, the capital city of Jiangsu Province. However, according to China's auto industry policy, foreign automakers are only permitted to have a maximum of two joint ventures with different Chinese partners making the same types of vehicles, passenger vehicles or commercial vehicles. Both trucks and buses are treated as commercial vehicles.
 

Iveco Therefore, Iveco had to cut its ties with either Changjiang Bus or Nanjing Automobile in order to allow for its marriage with SAIC to go ahead. decided to withdraw from the venture with Changjiang Bus as this loss-making bus venture was a millstone around its neck. In contrast, the venture with Nanjing Automobile remains profitable. The venture between Iveco and Changjiang Bus was launched in 2001 with an investment of almost US$100 million. Having an initial production capacity of 6,000 to 7,000 units, it was the biggest Sino-foreign bus operation at the time.

However, the venture suffered heavy losses due to sluggish sales and poor management. In August last year, Iveco sued Changjiang Bus for embezzling 122.6 million yuan (US$15.1 million) from the venture, sending a strong signal that it wanted to say goodbye to Changjiang Bus. The source from Iveco's China operations said the Italian firm had dropped the lawsuit as it had succeeded in extricating itself from the bus venture. According to the deal between Iveco and SAIC, their planned truck joint venture will acquire a 67 per cent stake in Chongqing-based heavy-duty truck manufacturer Chongqing Hongyan Motor Co Ltd. The venture will have an annual production capacity of 40,000 heavy-duty trucks and 30,000 engines by 2008. Analysts said Iveco's break-up with Changjiang Bus and tie-up with SAIC is a reasonable shift in its China strategy. "It indicates that Iveco is very disappointed with Changjiang Bus. But SAIC, as China's biggest and most profitable automaker, could be a good partner for Iveco to continue to expand here," said Zhang Xin, an auto analyst with Beijing-based Guotai & Jun'an Securities Co Ltd.

For SAIC, which now makes cars with General Motors and Volkswagen, an alliance with Iveco would give it a foothold in the heavy-duty truck market, Zhang said. China's heavy-duty truck market has been oversupplied as a result of slowing demand and overheated investment in recent years, which boosted mergers and acquisitions in the sector. According to industry data, China has the capacity to manufacture 750,000 heavy-duty trucks annually. However, industry analysts and executives predicted that the nation's annual heavy-duty truck demand would not exceed 400,000 units by 2010. Last year, demand tumbled by one-third to 220,000 units due to China's controls on fixed-assets investment, surging fuel prices and some adjustments in industry regulations.