Ford talks with VW to help reverse losses overseas

Keith Naughton
Bloomberg News

Ford Motor Co. is in serious negotiations with Volkswagen AG to broaden their alliance beyond commercial vehicles in ways that would help the American automaker reverse losses in Europe and South America and share costs of pricey technology and small cars.

“We’re having a very broad set of discussions about how we can help each other around the world,” Bob Shanks, Ford’s chief financial officer, said in an interview Thursday. “Collaboration isn’t being limited in any way whatsoever, whether it’s different types of technology, product segments or geography.”

The talks with VW are taking place at a pivotal time for Ford. While the stock soared almost 10 percent after the company beat earnings estimates, the automaker is restructuring globally and walked away from margin targets that it had set for 2020. Partnering with rivals is one way to lower costs and get new cars and technology to market faster.

Ford is in similar talks with Mahindra & Mahindra Ltd. to broaden an alliance that began to develop models for India and other emerging markets, including sport utility vehicles and electric cars.

“With VW and Mahindra, we haven’t put boundary conditions in terms of where we could collaborate,” Shanks said. “We’re looking at the strengths and the gaps of each company on both sides of the table and trying to understand how we can help each other.”

Hackett’s hint

Ford Chief Executive Officer Jim Hackett hinted that the partnerships were progressing when he spoke to analysts on the company’s earnings call.

“We look forward to sharing more about this global redesign of the company,” said Hackett, who is leading an $11 billion restructuring of the company. “We are going to be coming to you more frequently, including we’re going to talk about these strategic partnerships in the near future.”

Ford shares rose the most in more than nine years Thursday after the company surprised investors with a $2 billion pretax profit in North America, on the strength of sales of high-profit pickups and SUVs. The result is early validation for the automaker’s controversial decision to abandon sedans in America.

While there’s still much to be done to update Ford’s aging lineup and prepare for the self-driving future, the shares rallied after having plunged to an almost nine-year low earlier in the week.

“There was fear that we might disappoint,” Shanks said Thursday during a break from meetings with investors and analysts in New York. “There was relief that the business not only met expectations, but showed the strength of North America, the strength of Ford Credit and the fact that the overseas operations actually got slightly better.”

VW history

Striking deals with VW and Mahindra could further improve Ford’s outlook. Morgan Stanley analyst Adam Jonas predicts Ford will lose $3.6 billion in Europe from 2019 to 2021, making it the least-profitable automaker in that market.

In South America, where VW also operates, Ford has lost more than $4 billion since 2012. Sharing costs to develop cars and new technology with another automaker could help reverse those losses.

“In the world we’re in, where the future is so ill-defined because it’s yet to be created, companies are going to have to collaborate more together,” Shanks said. “We have a history with VW. We get along with them. And if you look at the strengths and weaknesses of each of us, we match up really, really well.”

The same is true with Ford’s relationship with Mahindra, Shanks said.

“That’s very important in these types of collaborations because getting along well is a good part of the formula for success,” Shanks said. “There’s lots of examples where that hasn’t been the case and, ultimately, they haven’t succeeded.”

Hurried discussions

Shanks wouldn’t say if there is a deadline for reaching deals with the automakers, but he said talks are proceeding with urgency.

“We’re trying to get things done as quickly as we can because we’re all trying to improve the fortunes of each of our companies,” Shanks said. “So we’re moving to get clarity and get moving on to the actual collaboration as quickly as possible.”

The partnerships and a parade of new products coming next year, including the mid-size Ranger pickup and redesigned versions of the Explorer and Escape SUVs, will begin to show the shape of Ford’s turnaround plan, Shanks said.

“Starting next year, the picture will start to come more and more into focus,” Shanks said. “It’s something that won’t be a big bang. It will be done as fast as we possibly can, but it will be done in chunks and pieces.”