Aug. 31--TOKYO -- Nissan Diesel Motor Co. and Mitsubishi Fuso Truck and Bus Corp. said Monday they have agreed to set up a joint venture company to merge their bus production operations by January 2011 as they seek to survive a shrinking market.

The deal will create Japan's largest manufacturer of medium-size and large buses with a combined share of around 38 percent, topping current industry leader Hino Motors Ltd.

Mitsubishi Fuso, owned 85 percent by Germany's Daimler AG, and Nissan Diesel already have ties, having supplied buses and engines to each other since 2006, but a merger became necessary as demand from tourist bus companies has plummeted amid the global economic downturn.

"The purpose of the planned increase in bus cooperation is to make effective use of both companies' resources," the two firms said in a statement.

The integration of Mitsubishi Fuso, ranked third in Japan for mid-sized and large buses with seating capacity of 30 or more passengers, and fourth-ranked Nissan Diesel will lead to combined annual sales of 2,046 units, based on figures in 2008.

The combined figure is larger than the approximate 1,800 units the industry leader Hino Motors, which also merged part of its bus operations with Isuzu Motors Ltd. in 2004, sold last year.

Mitsubishi Fuso and Nissan Diesel said they plan to separate their bus research and development divisions and production and sales operations, and merge them under a joint venture company.

Company officials said the two firms will iron out details on the new company name and investment ratio in future negotiations, which they hope to conclude before the end of next year. The buses they will release after the merger are expected to be sold under the new brand.

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