New Ford and VW partnership may face strains similar to those at Renault and Nissan
Peter Campbell and Patti Waldmeir in Detroit
A Ford worker on the assembly line. Ford is to make a commercial van and pick-up truck for Volkswagen © FT montage / Bloomberg
On dealership forecourts across the world, rival car brands vie for consumers’ attention and business.
But often behind the scenes, those competitors are working together, helping each other out by supplying engines or sharing technical knowhow.
The little-seen world of car collaborations received its newest member last week, when Ford and VW announced a sweeping alliance that will begin making commercial vehicles for each other, but may extend to co-developing electric cars, self-driving systems and other future vehicles.
Collaborations between otherwise-fierce rivals are not new in the industry. General Motors and Ford used to develop vehicle transmission parts together, while BMW and Mercedes-Benz-owner Daimler buy parts together.
But to prosper from the coming wave of expensive technologies, from battery cars to autonomy, manufacturers will need to seek financial strength in numbers.
“We have to reduce the amount of money everybody’s pouring in, because in the end consumers basically wants cheap transportation,” said Don Walker, chief executive of parts supplier Magna, in a speech at the Detroit Auto Show.
“Ultimately, we need to be more efficient with the capital we deploy in the industry.”
But partnerships are often fraught with tension.
The alliance between Renault and Nissan is a case in point as the nearly two decade partnership has experienced rising tensions between the two companies, not helped by the dramatic arrest and incarceration in Tokyo of Carlos Ghosn, its chairman and chief executive.
When the two groups started to develop their first electric models, they wanted to collaborate as much as possible. But neither side’s engineering team wanted to cede ground, and the resulting cars had a small number of common parts.
Ford and VW were at pains to stress the health of their embryonic partnership.
“We trust each other,” said Jim Farley, Ford’s president of global markets.
A VW worker. The company will make vans for its US rival Ford © FT montage / Bloomberg
“The success of this alliance or partnership, these projects, is going to be based on how we actually work together.”
The only concrete plans are for Ford to make a commercial van and a pick-up truck for VW, and for VW to make a city van for Ford.
But in future talks, it seems there are no limits for possible future projects.
In an interview with the Financial Times, VW chief executive Herbert Diess ruled nothing out, from Ford gaining access to the vast pool of electric car materials that VW plans to purchase, to possible future work on jointly developing vehicles.
There have even been some “smaller discussions around the edges” on future vehicles but “nothing concrete”.
“It always has to be a case of give and take,” he said.
The problem is that, sooner or later, one side will run out of things to “give”.
This goes to the problem at the heart of alliances.
When two or more companies are in a give-and-take relationship, sooner or later one business emerges as the stronger partner, leading to resentment among the weaker partner.
“The idea that both sides win never lasts for long,” said one former member of the Renault-Nissan Alliance, a partnership that looks close to breaking point, as it is about to celebrate its 20th birthday this year, after the arrest of its leader Mr Ghosn.
The question with Ford and VW is whether VW will run out of things it wants from Ford before Ford runs out of things it wants from VW.
Analyst John Murphy at Bank of America Merrill Lynch said he thinks that “what’s good for VW may not be so good for Ford”, adding the US carmaker risks “giving access to the crown jewel” by offering to make pick-up trucks for VW.
He added: “I think there’s tremendous risk, based on an early read of this deal. It seems like Ford is bringing everything to the table and VW is bringing less. Ford opening the door on pick-ups is a mistake, they aren’t getting a lot in return.”
Significantly, the two companies both ruled out a full merger, or any changes in capital structure, possibly eyeing mistakes made in the past with memories of the disastrous tie-up between Daimler and Chrysler still fresh.
Once committed to a partnership, it can also be difficult to unravel. For example, Renault and Nissan, which own stakes in each other, will face an extremely difficult and costly task in unwinding their capital structure should they choose to break ties.
The idea of carmakers pooling resources for survival was reinvigorated in 2015 by Fiat Chrysler’s late former chief executive Sergio Marchionne, whose own merger of Fiat and Chrysler in 2009 was one of the industry’s rare success stories.
His presentation “Confessions of a Capital Junkie” became an industry shorthand for the rationale behind collaborations, arguing that carmakers should not all invest separately into technology that will become commoditised, such as electric vehicle systems.
His claims were also fuelled by FCA’s desire to find a partner or buyer for the debt-riddled company — a desire that proved unnecessary, with the business hitting its lofty financial targets last year.
Today, FCA falls into the bracket of mid-size carmakers that would still benefit from working with others. The group is developing self-driving systems with BMW, and commercial vehicles with PSA.
“I am open to all of these opportunities,” FCA chief executive Mike Manley told the Financial Times.
“They are not crucial to my survival — but they may be beneficial to it.
“We know we have the strength to do all the things [in the new 2022 plan] as an independent company as long as we execute well.”
Another leading carmaker, General Motors of the US is working with Honda on several projects, from fuel cell development to autonomous vehicles, but like others, the groups have been reluctant to commit too closely. They have stopped short of calling the relationship an “alliance”.
GM’s chief executive Mary Barra said “integrity” was key to collaborations, which are subject to “twists and turns” when developing new technologies.“If there’s a situation of win-lose rather than win-win, it’s going to become exhausting.”
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