DEARBORN, Mich. — 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.
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.
On paper, from every angle, the allure of a Ford-VW partnership globally would be jaw-dropping, analysts said.
But nothing can happen without the support of the Ford family, which founded the iconic company 115 years ago and retains controlling interest.
Investment analysts have been critical of the leadership, in part saying Hackett hasn’t been clear about the path forward. Moody’s Investors Service in August downgraded Ford’s investment rating to one notch above junk, and stock is dipping to post-recession lows in recent weeks, making analysts wonder if someone might decide to accumulate shares during this time of great anticipation.
Volkswagen, to be sure, has its own problems. After being caught cheating on diesel emissions tests, it’s been fined a total of nearly $33 billion after German prosecutors on Tuesday penalized its Audi subsidiary $926 million. Former VW environmental manager Oliver Schmidt was sentenced by a Detroit federal district court judge to seven years in prison in the scandal.
Nonetheless, VW achieved its goal two years ago of becoming the world’s largest automaker. Ford is fifth.
People throughout the industry are watching carefully, including Gabrielsen.
“If I were VW, I’d acquire Ford as stock continues declining. Things are bad for Ford in three of four regions globally and in cars in North America. VW has three-and-a-half times the market share of Ford in China, more than twice as much market share in the EU and a quarter more share in South America.”
Gabrielsen said he can’t understand the lack of urgency by the Dearborn-based automaker.
“Ford can screw around with management layer reductions in North America and partnership in the other three regions instead of being acquired, in a desperate attempt to remain independent, but concurrently, the next auto downturn is coming,” said Gabrielsen, an Ann Arbor native who is based in San Jose del Cabo, Mexico. He travels frequently to Detroit, Chicago and Atlanta to meet with clients, primarily U.S.-based global companies.
“It is just a question of how soon. But, at the pace they are moving, the downturn will hit before they are done restructuring,” he said. “A VW-Ford combination would be the undisputed largest automaker in the world, leaving the (now) near-tie with Toyota in the dust.”
This Tuesday, Jan. 17, 2017, photo shows a Ford sign at an auto dealership, in Hialeah, Fla. Ford Motor Co. says a change in the way it values pension assets will cut 2016 full-year net income by $2 billion. (AP Photo/Alan Diaz)