Ford chief reassures workers about VW partnership to build pickups, vans
Ford Motor Co. CEO Jim Hackett assured employees and investors Tuesday that the Blue Oval is not merging with Germany's largest automaker Volkswagen AG — and he said plans to partner on commercial trucks and vans abroad won't result in job cuts on Ford factory floors.
But investors weren't excited by the announcement that the two automotive giants will develop and build commercial vans and midsize pickups for sale in South America, Africa and Europe starting in 2022 as part of an effort to boost global profitability. Ford shares closed down 1.7 percent Tuesday to $8.84.
Hackett and VW CEO Herbert Diess were vague about whose plants could build which vehicles, the status of other partnerships between the two companies on autonomous or electric vehicles, and if workforces would be moved around to staff the European factories expected to build pickups, large vans or smaller city vans.
Hackett assured Ford employees in an email obtained by The Detroit News that "I do want to be clear in saying this alliance does not involve cross-ownership, and Ford and Volkswagen will continue to operate as two distinct companies.
"The actions we take tied to our alliance agreements may influence a number of our business plans for key regions," Hackett wrote, "and we look forward to begin sharing a number of those details with you starting in the next several weeks."
Diess and Hackett said the agreement would likely be the first in a string of global partnerships.
The automakers plan to share investments on the commercial truck and van platforms. They would be sold under either the Ford or VW badge depending on the region in which they are sold, Jim Farley, Ford president of global markets, said Tuesday.
The commercial vehicles are the formal agreement the automakers have come to following months of negotiations on global partnerships. Ford and VW are continuing to negotiate other collaborations, including those on electric vehicles, autonomous vehicles and other mobility efforts. The ongoing discussions make allies out of two of the world's largest automotive brands as Ford and other automakers restructure to better prepare themselves for an uncertain future.
"You can't do this alone," Hackett said. "In these changing times must also come the evolution of this ecosystem."
Said Diess: "Right from the beginning we thought about a strategic worldwide alliance."
Ford will engineer and build midsize pickups for both companies, which will be sold starting in 2022 in South America, Africa and Europe. Farley, Hackett and VW leadership said Tuesday they were still discussing whether that co-developed pickup would ever go on sale in the U.S., where Ford dominates the pickup market.
The Dearborn-based automaker will develop and build larger commercial vans for European customers. Volkswagen will develop and build a city van. The automakers intend to use existing plants in Europe to build the vehicles. The vans are targeted for the European market, where Ford currently has a strong commercial vehicles business. The vans would go on sale in 2023.
The Ford-VW alliance would be the first of many in a changing auto industry, analysts believe.
"The dynamic, competitive nature of this industry will reward collaboration while punishing a siloed approach," said Karl Brauer, executive publisher for Kelley Blue Book and Autotrader. "But as the current controversies surrounding the Renault-Nissan-Mitsubishi alliance prove, collaboration isn’t always easy, and it doesn’t guarantee success."
The Ford-VW co-developed vehicles should hit their respective markets about five years from now, which is the time frame it takes for modern automakers to design, allocate and build all-new vehicles. Ford and VW combined sold 1.2 million light commercial vehicles in 2018. The automakers expect demand for medium-size pickups to grow in the next five years.
The automakers aren't far off on negotiations regarding autonomous vehicles, Diess and Hackett said. The two talk on the phone often, according to Diess, and the automakers are trying to figure out how to combine their already large networks of technology companies into a functioning partnership. The automakers aren't ruling out an electric vehicle partnership in China.
The automakers have been negotiating a possible $1 billion-plus VW investment in Argo AI, the autonomous vehicle company in which Ford owns a majority stake. That's been a sticking point during negotiations. VW has already made significant investments in its own autonomous vehicle research.
VW is also investing millions in electric vehicles, which are currently missing from Ford's lineup, though the Dearborn-automaker has started launching new hybrids and plans for a battery-electric vehicle for 2020. VW said Monday it will spend $800 million on a new electric-vehicle facility in Chattanooga, Tennessee.
Coming to terms on a more future-oriented partnership could be vital to the success of both automakers long-term.
"Automakers aren’t just competing with each other anymore. They’re under intense pressure from well-funded tech companies who are eager to get in on the future of mobility," said Jessica Caldwell, analyst with Edmunds. "Cutting costs by sharing vehicle architectures and manufacturing facilities is just table stakes in this new world, and is a nice place to start."
The partnership on commercial vehicles should boost VW's and Ford's balance sheets in 2023, around the same time Hackett's global restructuring and cost-cutting wraps, Hackett said.
Morgan Stanley analyst Adam Jonas warned against excitement over Tuesday's announcement. He wrote that it's important Ford not rely on VW to "tackle fundamental and business model pressures."
Farley said Tuesday night at the Automotive News World Congress in Detroit that the VW partnership will help Ford's bottom line in Europe, but is not the only answer.
"We have much more heavy lifting to do in the short term," he said. "We need to turn the profit around now... we have cost issues that we need to deal with."
Hackett and Diess kept details close regarding other aspects of the partnership talks. Hackett said he wants to hold off on officially announcing anything before the companies feel they have "invented" something new. He cited competitive reasons.
"Over the course of our negotiations, we constantly broadened our discussions," Diess said. "Our approach is smart and pragmatic. It might lead to further formal agreements in the future. In light of what this industry is going to face, the partnership is highly relevant."