The carmaker, based in Gothenburg, southwestern Sweden, cited a possible divestment by its US parent company Ford as the reason behind the breakdown in discussions.

The company said in a statement that the decision had been reached 'jointly' with the government in light of 'Ford's strategic review which could lead to a sale of Volvo Cars.' Ford said in March that it was in advanced discussions with potential buyers for its Swedish brand.

On March 12, the European Investment Bank granted 3.0 billion euros in loans to a number of European carmakers, 200 million euros of which was earmarked for Volvo Cars.

But the securing of those loans was dependent on the Swedish government agreeing to act as a guarantor.

'We are disappointed that we have not been able to come to an agreement.

Our competitors in other markets like Italy, Germany, France and UK have been able to utilise similar EIB loans which clearly give them competitive advantage during these difficult times,' said Volvo's chief executive Stephen Odell in a statement.

Volvo Cars has been a separate company from the Volvo Group, the truckmaker, since it was acquired by the US giant Ford in 1999 for US$6.45 billion. -- AFP