Ford, Volkswagen Talks Heighten the Possibility of Broad Alliance

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Ford and Volkswagen LogosAmid the whirlwind of trade intrigue that involves everything from stock market gyrations to the future of America’s relationships with China and the European Union, an interesting hookup between companies and brands may be forming: a broad alliance between Ford and Volkswagen.

Each company is beset by individual problems—Ford with some evident rudderlessness under CEO Jim Hackett and an inability to improve in Europe, VW with CEO roulette and the vestiges of Dieselgate, among other things—and both automakers face the growing obviousness of excess global industry capacity.

So why not accelerate the talks they began earlier this year about cooperating on individual small projects into more of a full-blown relationship?

The prospects for such an alliance have become brighter this week after VW CEO Herbert Diess, Daimler AG CEO Dieter Zetsche and BMW’s chief financial officer met with President Trump and US trade officials at the White House, nominally to talk about all the ways in which the German automakers are investing more in American facilities and jobs. Not far underneath the surface, of course, was whether such niceties would help the Germans avoid Trump’s threat to slap 25 percent tariffs on automotive imports.

Meanwhile, Hackett was having to bat away reporters’ questions about whether Morgan Stanley analyst Adam Jonas was in the ballpark with his prediction this week that Ford would have to eliminate potentially tens of thousands of jobs. The question is ripe, of course, partly because Hackett, in July, signaled that he would be overseeing major cost cuts sometime soon, and partly because General Motors CEO Mary Barra dropped her hammer last week by announcing the company’s major transformation plan that includes shuttering five North American factories and eliminating more than 10,000 jobs, in addition to a recent buyout of salaried personnel.

So far, Ford and VW have said only that they are thinking about designing and making vans and commercial vehicles together. But analysts quickly suggested that they could also work together on Ford’s struggles in the European market, where it is unprofitable, and Volkswagen’s problems in the US, where it has acquired little traction since making a new corporate commitment to the American market about a decade ago that included opening a new plant in Tennessee in 2011.

If the two companies get more serious, Hackett might be able to avoid part of the need to trim Ford’s US employment rolls by a number that some outsiders have said could reach as many as 25,000 jobs. Ford and VW could provide an innovative solution to the problem of overall industry overcapacity. And Volkswagen could access a low-cost, low-risk way to expand effective US capacity without having to build a facility adjacent to or in addition to its Tennessee plant.

And there’s this: After the meeting with Trump, Diess told journalists he’d like to see VW become a 5 percent share player in the US, up from its current 1.9 percent market share. VW hasn’t been able to climb much from that level even seven years after opening its plant in Chattanooga, Tenn., and even after introducing new SUV models to tap into the current American craze over utility vehicles.

Also meanwhile, Volkswagen has said that it is working on the last generation of its gasoline- and diesel-powered cars, which would be rolled out beginning in 2026. Even against the backdrop of its loss of brand goodwill and tens of billions of dollars in fines for the diesel-emissions scandal, and struggles to sell its sedans in the US market, Volkswagen has pivoted decisively toward a future lineup based on electric cars. Ford has said it is accelerating its commitment to EVs as well.

“Our colleagues are working on the last platform for vehicles that aren’t CO2-neutral,” Michael Jost, strategy chief for the VW brand, said at an industry conference in Germany, as reported by Bloomberg. “We’re gradually fading out combustion engines to the absolute minimum.”

Ford and VW said they would talk more in January. The world will be watching.

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