Ford and Volkswagen flirting with relationship possibilities
Phoebe Wall HowardUpdated 11:20 p.m. ET Oct. 16, 2018
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. Wochit
Auto industry observers say Ford Motor Co. and Volkswagen would be an ideal marriage as the two carmakers engage in serious discussions about a potential partnership with unlimited potential.
“Something big is brewing,” said John McElroy, Autoline.tv host and longtime industry analyst.
“Look, if it isn’t, (Ford CEO) Jim Hackett can't survive. He has got to drop a bombshell on the industry.”
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.
VW is strong in Asia, South America and Europe, and lacks vehicles in the high-profit full-size pickup category.
Ford dominates the U.S. with its lucrative F-Series pickup trucks and SUVs.
“Ford is already flirting with joint ventures with VW,” said Jon Gabrielsen, an independent market economist who advises automakers and suppliers. “So, the immediate question before Ford now is, does one do a difficult but orderly marriage now or wait to be forced to do a disorderly fire sale under duress later? I see millimeter steps at a time when they should be taking a massive leap."
The most logical alliance partner for Ford would be Volkswagen, he said. Ford is strong in the U.S. where VW is weak, and Volkswagen is strong in markets where Ford is weak, particularly Asia.
"In 2017, VW was No. 1 in China while Ford was only No. 10 in an overcrowded market with over 70 players that is ripe for consolidation in which only the top few will survive," Gabrielsen said.
Ford and VW announced in June that the two companies had 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. Both companies said they want to strengthen global competitiveness.
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.
A Volkswagen spokesman declined to comment to the Free Press about "speculation." But a top company official's recent interview in Germany offers insight.
“We are currently exploring the possibilities of a collaboration. I am very confident that we will have something more concrete to say about this in the coming months,” Thomas Sedran, the new chairman of the board of management of Volkswagen Commercial Vehicles, told a Hanover, Germany, newspaper on Aug. 31. “However, nothing definite has been decided yet. Only when this is the case can we think about how we might be able to develop the next generations of models together.”
VW is talking to Ford “about various projects” with a “clear focus on light commercial vehicles,” he said. “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.”
Asked if VW Commercial Vehicles and Ford would “carry out production together,” Sedran responded, “All this is part of the talks. I must ask for some patience here.”
Together, the iconic German and American companies could dominate the industry.
Ford makes nearly 40 percent of all full-size pickup trucks sold in the United States. And VW sells nearly 15 percent of the vehicles purchased in China, the largest auto market in the world.
Jennifer Flake, executive director of communications at Ford, told the Free Press this week, “Ford is committed to leveraging adaptive business models, which includes working with partners to improve our fitness and the value we create for all stakeholders. This strategic alliance with VW is another example. We currently have an MOU with Volkswagen AG, covering conversations about potential collaborations across a number of areas. For instance, we are exploring how and whether to collaborate on a range of commercial vehicles for customers.”
She added, “We continue exploring a strategic alliance and will provide additional details as talks progress toward the end of the year. We believe the work streams — including commercial vehicles — have significant potential, but are not talking about values yet."
Ford and VW could save hundreds of millions through collaboration, analysts said.
“I think the commercial truck operations were a point of beginning for their discussions and, as they got more and more into it, they probably see a lot more synergies,” said McElroy, whose father retired as a Ford executive. “No one is sure of the form it’s going to take but, look, we need a lot of consolidation in the industry. There are too many car companies with too many brands making too many models.”
Now is the time for automakers like Ford and VW to grow profit together, he and others said.
“You can share vehicle platforms and powertrains,” McElroy said. “I don’t think people buying cars even know what’s under the hood. It doesn’t matter. I mean, Mustang GT? Those people do. And Audi RS? They do, too. But 90 percent of the car-buying public doesn’t know or care. Why not share all that stuff?”
Ivan Drury, senior manager of industry analysis for Edmunds, said VW and Ford have virtually no product overlap and collaboration makes “more and more sense” when examining the data.
“They’re just not making the same products," he said. "And we’ve seen so many mergers with automakers.”