Ford Motor yesterday agreed to buy the cars division of Sweden's Volvo for $6.45 billion (€5.56 billion) in cash in the latest consolidation in the world motor industry.

The sale of Volvo cars, which built almost 400,000 vehicles last year, will increase pressure on Scania, the Swedish heavy truck manufacturer. Volvo bought almost 13 per cent of its rival this month after the failure of takeover talks. Sale of its cars side will boost Volvo's ability to buy Scania, valued at SKr47 billion (€5.26 billion).

Ford's move will increase pressure on other car manufacturers to find partners at a time of cut-throat competition and chronic overcapacity. Spurred by last year's creation of DaimlerChrysler, leading manufacturers have been reassessing assumptions about optimum size and economies of scale.

Based on 1998 figures, the combined operation has more than 13 per cent of annual car and commercial vehicle sales in the Republic and the acquisition will underpin Ford's position at the top of the Irish motor market. It is unclear whether the Irish distribution businesses of the two companies will be merged.

By contrast, Fiat shares fell sharply at first before closing barely changed as investors reacted to the failure of its latest partnership attempt. The Italian group had been negotiating a merger with Volvo.