Truckmaker AB Volvo will pay ¥29 billion (US$280 million) for 5% of Mitsubishi Motors Corp. in a deal that resembles the Renault SA-Nissan Motor Co. Ltd. alliance on a smaller scale. In a letter of intent, Mitsubishi says it will buy 5% of Volvo over the next three years. Today, such participation would cost US$600 million.

The deal allows Volvo to strengthen its position in Asia; Volvo currently has a truck plant in India and a truck-making joint venture in China. Mitsubishi officials reportedly emphasized the merits of cost-sharing, especially in the areas of research and development. The company carries ¥1.77 trillion (US$16 billion) in interest-bearing debt.

The companies were already developing a medium-duty truck together. Under the new agreement they will exchange non-management executives and work together on strategies for selling medium- and heavy-duty trucks around the world.

Mitsubishi agreed in a letter of intent to put its bus and truck business in a separate subsidiary by next April, and sell up to 19.9% of it to Volvo. Volvo and Mitsubishi each would appoint one or two non-management board members to the other company's truck and bus division.

“I think it's quite a good strategic decision to go into Japan,” says Erik Kjellgren, an auto analyst for Nordbanken in Sweden. “That's a market where Volvo doesn't have a strong position today.”

Mitsubishi annually sells about 150,000 light trucks, 30,000 medium-heavy trucks, 20,000 heavy trucks and 7,500 buses, of which 2,000 are heavy buses. Volvo sold 83,280 medium-heavy and heavy trucks during 1998, and 10,200 heavy buses.