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Ford, VW Deal Seen As Disappointingly Defensive

Ford, VW Deal Seen As Disappointingly Defensive.

“The two announced a damp squib of a deal”

“Ford/VW Alliance: Lacks Scope, Detail and Action,”

Ford and Volkswagen’s long-awaited alliance plan didn’t please investors, who viewed it as too defensive and lacking ambition.

Ford and VW announced details of their plan at the Detroit Auto Show, which combined their efforts on vans and pickup trucks, and promised joint development of electric and autonomous vehicles.

The companies eschewed any plans to merge or swap equity stakes.

The plan was viewed negatively because investors were hoping for more dramatic action in the face of burgeoning problems in the global auto industry. Sales in the world’s biggest market, China, are weakening, and will have a global impact. Worries about a recession gain ground. And investors fear threats from rich high-technology outsiders threatening to grab market share as consumers dump traditional car ownership and embrace new methods of transportation like car sharing, electric cars and autonomous ones.

“The two announced a damp squib of a deal to jointly produce some vans and a mid-size SUV, and perhaps cooperate at some point down the road on electric and autonomous vehicles,” Reuters Breaking Views columnist Antony Currie said.

S&P Global Ratings believed the plan was defensive, but not without merit.

“The alliance appears to be a strategically defensive move to share vehicle architecture-related expenses in an attempt to offset the intensifying competitive pressures and escalating costs facing the auto industry over the next decade. Though the details are scant at this stage, we believe the alliance will support – and possibly even enhance – VW’s and Ford’s competitive advantage over the next decade,” S&P Global Ratings said.

Words unminced
Investment bank Morgan Stanley didn’t mince its words.

“Ford/VW Alliance: Lacks Scope, Detail and Action,” was the headline on its report.

“This was disappointing versus rising market expectations for an ‘expansive’ alliance that could transform the industry. While the Ford/VW relationship may bear greater significance and value for shareholders over time, we struggle to see a material benefit from the (plan),” Morgan Stanley analyst Adam Jonas said.

The Wall Street Journal’s Heard on the Street column saw some benefits, but not many.

“As far as it goes, the VW-Ford arrangement is welcome in an industry plagued by excess capacity. But it doesn’t solve either company’s key problems: Ford’s money-losing European car business: VW’s money-losing U.S. operations; Ford’s lack of effective electric-vehicle strategy: and VW’s lack of effective driverless-car strategy,” Heard on the Street columnist Stephen Wilmot said.

Fitch Solutions was a bit more enthusiastic, but more for its defensive qualities.

“This tie-up plays well into our key themes for 2019 that cost cutting will become central to (manufacturers’) strategy for 2019, as more (manufacturers) seek to streamline their operations and adopt as leaner business model,” Fitch Solutions said in a report.

Subdued outlook
“That said, we hold a subdued outlook for global vehicle sales in 2019 which is not good news for automakers, who are already struggling to remain profitable. This move by VW and Ford is well timed as they will have to work together to improve profitability and reduce R&D spending in order to be in a good financial position to capitalize on future growth opportunities,” Fitch said.

Perhaps it’s no wonder both companies don’t want to countenance a more formal, intimate arrangement. The history of global automotive alliances, like the ill-fated Daimler-Chrysler deal, isn’t good.


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