Analysts note that the car companies recently initiated talks about small partnerships, but each may be motivated to think big because of their limited product lines and limited regional scope.
Ford Motor Co. and Volkswagen Group will move forward with discussion to jointly manufacture a range of light commercial vehicles, Volkswagen said Friday during a news conference in Germany.
Talks on a broader partnership continue with an aim to firm up plans by year’s end, VW CEO Herbert Diess said.
“We’re looking into common platforms that we have,” he said, adding: “Ford is very strong in the U.S.; we are strong in other markets.”
The opportunity delivers lower costs and bigger profits to both companies, which “will remain competitors” in other arenas, the German company said. Diess emphasized that a merger with Ford was “never” contemplated as part of the discussions.
Ford and Volkswagen have been engaging in a wide-ranging partnership with game-changing consequences for the auto industry.
Ford spokeswoman Jennifer Flake responded Friday morning, “Our MOU (Memorandum of Understanding) with VW covers conversations across a number of areas. It is premature to share additional details at this time.”
The carmakers have not ruled out joining forces to potentially develop electric vehicles and driverless technology.
Volkswagen officials said Friday they plan to invest 44 billion euro ($50 billion) in “e-mobility, autonomous driving, new mobility services and digitalization” over the next five years.
The company, headquartered in Wolfsburg, Germany, is the world’s No. 1 automaker by sales.
Collaboration between the two companies is viewed as a path to significant savings on research and development while at the same time delivering big revenue.
Ford officials said this week during a driverless vehicle media presentation in Miami that the company predicts incredible return on investment with AVs (autonomous vehicles) and a higher profit margin than exists today in the car industry.
The opportunity is “massive,” said Sherif Marakby, CEO of Ford Autonomous Vehicles LLC, who estimated the market value to exceed $300 billion per year for driverless delivery of people and products.
Ford CEO Jim Hackett has said technology companies see trillions of dollars at stake.
Working together, the iconic German and American companies could dominate the industry.
VW is strong in South America and Europe and Asia, but lacks vehicles in the high-profit full-size pickup category. Ford is strong in the U.S. with its sales of lucrative F-Series pickups and SUVs.
Ford makes nearly 40 percent of all full-size pickups sold in the United States. And VW sells nearly 15 percent of the vehicles purchased in China, the largest auto market in the world.
On Friday, news leaked early out of the VW supervisory board meeting that the CEO of Volkswagen would assume leadership of China operations in early 2019. Such an unexpected pivot in a highly valuable market signaled concern among analysts.
“From what I have heard from on the ground in China, things apparently feel much worse in China than the government press is letting on, and hence the global press is realizing. Since China is huge for VW, if China is troubled, they are worried,” said Jon Gabrielsen, a market economist who advises automakers and auto suppliers..
“This would also be consistent with the struggles Ford is having in China and that GM may have as well. Just the abrupt change from 10 years of 15 percent annual auto sales growth literally every year, to becoming flat to slightly declining for now, is a massive shock to the market.”
Collaboration with VW is familiar ground for Ford, Gabrielsen said.
“What VW and Ford appear to be planning for commercial vehicles is joint design, development and manufacturing to then be separately branded, marketed and sold by each of them individual companies,” he said. “This would be analogous to past joint car production for North America such as Mazda Flatrock Michigan that produced Ford and Mazda cars, Mitsubishi Bloomington Normal Illinois that produced Mitsubishi and Chrysler cares, and CAMI in Ontario that produced Suzuki and Chevrolet cars.”
Ford and VW started talking in June about cooperation on light commercial vehicles, reflecting the pressure from new players and scope of the transition in mobility.
On the Volkswagen website, now listed under “Partnerships are a key success factor for shaping the future” is the following statement about Ford:
“The talks with Ford about an industrial cooperation announced earlier are progressing positively so far. The two companies complement each other very well in terms of both products and regions. The joint development and manufacture of a range of light commercial vehicles is at the core of the envisaged cooperation. Volkswagen expects significant synergy effects from the potential to lower costs or increase performance via scales. Ford and Volkswagen will nevertheless remain competitors, as the proposed cooperation does in no way concern commercial, marketing or pricing strategies. Additional fields of cooperation outside the light commercial vehicle segment with the potential for expanding collaboration have also been identified.”
Executives at both Ford and Volkswagen referred to ongoing talks and potential collaboration during third-quarter earnings calls in October.
“The companies want to bundle their forces,” German news reports said. “The aim of the cooperation is to significantly reduce the costs for the development of these future technologies: At Volkswagen alone, investments in this area would add up to around 34 billion euros (or $38.8 billion)” through 2022.
Diess planned to present on Friday to the Volkswagen board his investment plans for the next 10 years — “and this is all about the development of electric motors and self-propelled and networked cars,” Handelselsblatt reported.
Discussion has been simmering for months, and followed closely in German media.
VW was talking to Ford “about various projects” with a “clear focus on light commercial vehicles,” Thomas Sedran, the new chairman of the board of management of Volkswagen Commercial Vehicles, told a Hanover, Germany, newspaper on Aug. 31. “Although Volkswagen is the largest car manufacturer in the world, we still don’t have the scale in certain areas to achieve optimal cost positions.”
Hundreds of millions at stake
Ford and VW signed a Memorandum of Understanding to explore several joint projects, including (but not limited to) joint development of a range of commercial vehicles to better serve global markets.
While the MOU is designed to allow for confidential exploration of a potential partnership, any strategic alliance explicitly “would not involve equity arrangements, including cross ownership stakes,” news releases said at the time.
Ford and VW could save hundreds of millions through collaboration, analysts said. VW’s Sedran noted in August that the carmakers have had success previously.
“(Volkswagen) and Ford have worked closely together before, for example in AutoLatina, a strategic alliance for South America. The interesting thing is that when this joint venture came to an end in 1995, there was no conflict or bad opinion of one another,” he said. “Today, we have key figures on both sides who were involved back then. The cultures of the companies would be a good match.”
Meanwhile, Ford has announced it would begin workforce reductions globally in coming months while implementing Hackett’s vision to make Ford more “fit” and competitive. Thousands of white-collar jobs are expected to be eliminated as the company searches for better efficiencies.
Industry experts say job tightening would likely happen in places where VW is already strong and Ford is already weak, so a partnership wouldn’t actually impact the planned jobs reduction.
“We are the market leader in Europe but less well represented than we have come to expect from Volkswagen in many other regions,” Sedran said. “I recently spoke about the scarcity of resources — this has also repeatedly slowed down the development of new markets. We have more scope for internationalization. … Ford would also open up new opportunities for us internationally.”
Ford observers and German press went into the news conference Friday with strong expectations for significant information relating to Ford.
“My hopes had been too high,” Gabrielsen said. “But at least, in the excruciatingly slowly emerging picture of future improvements for Ford, Volkswagen confirmed the partnership in light commercial vehicles and alluded to additional decisions and announcements of possible additional partnerships to be made by the end of this year.”
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Contact Phoebe Wall Howard: email@example.com or 313-222-6512. Follow her on Twitter @phoebesaid
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