Volvo has provided strong reasons to the EU's competition authority regarding why the market for heavy trucks and buses should be viewed as pan-European. The industry is highly internationalized and competitive, with professional customers who operate transnationally. National laws have been successively harmonized and national restrictions for road transports have been eliminated. This transformation of the conditions for commercial transports has occurred in a short time and was accelerated through by the formation of the EU's common market.

In prior decisions related to the industry, the EU Commission has taken this development into account. Among other decisions, the merger of French RVI and Italian Iveco's bus operations and German Daimler's acquisition of the German bus manufacturer Kässboher were approved by the Commission a few years ago.

However, the competition authority has not applied the same perspective in the review of Volvo's acquisition of Scania. Accordingly, Volvo's understanding of Europe as a single market has not been accepted by the EU's competition authority. In Volvo's case, the authority contends that each country in the EU should be viewed as a separate market.

Volvo considers that prior decisions by the EU Commission must be prejudicial, particularly since the development in recent years has been toward further liberalization and internationalization. In Volvo's opinion, it is unacceptable that certain manufacturers from large countries are covered by one interpretation of the EU competition rules, while certain manufacturers in small countries are covered by another.

During the ongoing review, both Volvo and the EU's competition authority have carried out surveys of the customers' views on the proposed acquisition. A majority of customers favor Volvo's acquisition of Scania. The customers consider that the competition situation in Europe does not mean that Volvo can utilize its position on individual markets to affect prices and instead see advantages in the form of better products at lower prices.

With the aim of reaching an agreement based on the competition authority's view of national markets, Volvo agreed on February 21 to extensive concessions that would contribute to further stimulating competition in the Nordic markets. These concessions are:

• that Volvo opens its service dealer network for competition in Sweden, Finland, Norway, Denmark and Ireland.
• that Volvo opens its dealer network for competitors in Sweden, Finland, Norway Denmark and Ireland and,
• as a result, provide dealers expanded business opportunities.
• that Scania does the same on those markets, except Ireland.
• that Volvo divests its 37% holding in Bilia AB.
• that Scania's bus and coachwork operations in Silkesborg, Denmark and Katrineholm, Sweden be divested.
• that Volvo's coachwork operations for buses in Aabenraa, Denmark be divested.
• that Volvo continues to allow competitors access to the coachwork operations in Carrus Oy, Finland.
• that Volvo exerts influence on the Swedish government to abolish crash tests for truck cabs.
• that the Scania brand for heavy trucks and buses not be used for two years in Sweden, Finland and Norway,
• and that Scania's products are sold under another brand name on those markets.

Volvo has been a strong opponent of the concession regarding banning the use of the Scania brand in Sweden, Norway and Finland. Fundamentally, Volvo's view is that this measure is industrially and commercially destructive. However, for the purpose of facilitating an agreement with the competition authority, Volvo decided, with great hesitation, to accept this concession.

After discussions with the competition authority, Volvo supplemented the above measures on March 3 with a formal guarantee of reduced market shares in the Nordic region. Volvo undertook to reduce Volvo's and Scania's total market shares in Sweden and Norway by 15 percentage points and in Finland by 10 percentage points. The corresponding guarantee was also provided for the bus operations. At the same time, Volvo withdrew its earlier concession of not being able to use the Scania brand in Sweden, Norway and Finland and the concession regarding sale of Volvo's holding in Bilia.

As an alternative to the offer of guaranteed level of market shares, Volvo offered competitors to take over a large number of dealers in Sweden, Norway and Finland, corresponding to a portion of Volvo's and Scania's sales of a maximum of 35% in Sweden and 25% each in Norway and Finland.

"The negotiations between Volvo and the competition authorities show that we stand far from one another. If the conditions for an approval are not improved significantly, it is meaningless to submit a new application, with the risk of awaiting a highly uncertain outcome for another five months," says Volvo's CEO Leif Johansson.

In negotiations with Volvo, the EU's competition authorities presented the following points for discussion:

• Volvo is forced to divest Scania's bus operations
• Volvo is banned from distributing Scania products in Sweden, Norway, Finland, Denmark and Ireland.
• Distribution of all Scania's products in Sweden, Norway,. Finland, Denmark and Ireland to be transferred to
• competitors for seven years.
• Sale of dealerships owned by Volvo and Scania in Sweden, Norway, Finland, Denmark and Ireland.

(March 8, 2000)