Arthur J. Villasanta – Fourth Estate Contributor
Dearborn, MI, United States (4E) – The Volkswagen Group (the world’s largest car maker by sales) and the Ford Motor Company (the U.S.’ second largest car maker) are expected to cement their proposed alliance in early 2019.
Analysts said this move by two of the world’s leading motor vehicle makers is part of a new paradigm where car firms look for advantages in specific market segments like hybrid SUVs, pickup trucks or city cars instead of building one machine with universal appeal.
Then, there’s the undeniable shift towards electric cars and autonomous cars that makes it cheaper to partner with another firm instead of going it alone.
Ford and VW don’t want a merger but want to share costs by joining forces in markets and technologies where they face problems but don’t want to abandon. Ford faces huge difficulties making money from passenger cars in South America, China and Europe,markets whereVW is stronger.
On the other hand, VW remains a niche player in the profitable U.S. pickup truck segment. It said in September it will stop producing its iconic Beetle to prepare itself to make mass-market electric cars.
Volkswagen also needs to slash the cost of developing new cars. It also needs to increase sales of zero-emission vehicles to some 30 percent of new car sales by 2030 to meet new European clean air rules.
VW now wants to sell an electric car for less than $22,836 to help wean customers away from gasoline-powered cars.
Tie-ups such as the one between VW and Ford point are part of a growing trend. Honda and General Motors have agreed to share development costs on autonomous vehicles. Toyota and Mazda plan to follow Mercedes-Benz and Nissan in sharing a factory to serve the NAFTA markets. Jaguar Land Rover are looking at alliances in the area of powertrains.
More than ever, economies of scale matter in architecture and powertrain. In theory, car firms can keep costs down through lower tooling costs, but this means a car has to be made in different places in the world, which means double-tooling.
Focused partnerships can work better than formal mergers, said analysts.
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