Can Volkswagen Help Save Ford?

Print Email

Ford Motor Co. (NYSE: F) has been heavily criticized for its product mix, its plans to reinvent the company for the self-driving and electric car future, and its modest presence overseas. Investors have suffered in the process. Ford has just announced the chance it will develop cars with Volkswagen, which is by many measures the largest car manufacturer in the world.

Ford’s shares have been banged like a drum in the past year. It is up 7% to $12, while the S&P 500 is up 25% over the same period and larger rival General Motors Co.’s (NYSE: GM) share is up 23%. Most of Ford’s performance has been put at the feet of new CEO James Hackett, who has been chief executive since last May. Investors liked his two predecessors, Mark Fields and Alan Mulally, better. Hackett has laid out plans to cut legacy costs and advance Ford’s technology, but Wall Street has not been impressed.

VW has trouble of its own. A diesel engine scandal has crippled company management for over two years, although its operating results have not been damaged much. It has had to take huge reserves for repairs and litigation. The CEO of Audi recently stepped down after being arrested. His part in the scandal is not entirely known, but concrete evidence was certainly the catalyst for his downfall.

Ford made the odd decision to announce the VW deal, although there is no deal at all. Management wrote:

Volkswagen AG and Ford Motor Company today announce they have signed a Memorandum of Understanding and are exploring a strategic alliance designed to strengthen each company’s competitiveness and better serve customers globally.

The companies are exploring potential projects across a number of areas – including developing a range of commercial vehicles together to better serve the evolving needs of customers. The potential alliance would not involve equity arrangements, including cross ownership stakes.

The companies said they will make comments later if anything happens.

Ford will continue to look for alliances. It needs them to advance its production of future vehicles, particularly on the expensive and research-intensive path toward self-driving cars and electric vehicles. There is nothing in the announcement that says the potential partnership will help VW move in a direction to solve its problems.

I'm interested in the Newsletter