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For VW and Ford, the challenge is to keep the partnership going strong

Murali Gopalan | Updated on July 18, 2019

About 2,300 of the affected people are employed in the United States. File Photo

It’s never easy when two big brands come together and this is where leadership plays a huge role

Ford and Volkswagen have finally made official the finer details of their alliance. The duo will now work jointly on electric mobility, autonomous driving as well as manufacture of pick-ups in the commercial vehicle space.

From Ford’s point of view, the next big announcement could be the tie-up with Mahindra & Mahindra, which is intended to reboot its Indian innings as well as cater to other emerging markets in the ASEAN region as well as South Africa and Latin America.

As in the case of VW, e-mobility will be a part of the Ford-Mahindra alliance, which is keeping in line with what India and the rest of the world are pursuing with a vengeance. It remains to be seen if the tie-up will also lead to Ford’s existing assets transferred to the new joint venture as has been reported in a section of the press.

The teaming up with VW and Mahindra clearly reflects Ford’s priorities going forward. The next decade is going to be challenging and tumultuous for the global automobile industry with a host of new frontiers emerging on the landscape. While electrification is doubtless the most important, manufacturers are also gearing up for an era of mobility disruption with new technologies as well as changing buying patterns.

Be it India or other parts of the world, Ford clearly understands that it needs allies to leverage opportunities as well as outline priorities. It’s no secret that it has little to show in the subcontinent even after being around for over two decades.

Its American counterpart, General Motors, took the easier way out and has now confined its India presence to manufacturing cars in Pune and exporting them to Latin America. It has shut the tap on retail sales, which only made sense considering that it had been floundering over the years.

Needing allies

Ford, in contrast, will be more hopeful with the Mahindra alliance considering that two heads are always better than one. It also puts in context the VW tie-up, which will once again pool skills and investments to ensure that the risk factor is minimised in a rapidly volatile world where trade wars are turning out to be among the biggest headwinds for manufacturers.

Volkswagen’s plans

As for VW, it has constantly focussed on alliances and acquisitions as part of its growth script over the years. It also explains why it has a slew of brands across segments right from cars to two-wheelers (Ducati) and trucks. The Ford alliance has been clearly defined in its scope though there is no telling why the partners will not choose to expand it if things go according to plan.

VW was in talks to sew up a pact with Tata Motors following the initial announcement to explore the prospects of working together at the 2017 Geneva Motor Show. The two subsequently called off talks and VW’s India project has now been rebooted with a Skoda-led initiative.

Along with the Ford tie-up, VW’s truck and bus business, which is now part of a new entity called Traton (comprising brands like MAN, Scania and VW), has joined hands with Hino Motors. This Toyota group company and its German ally will also work together on e-mobility as well as joint sourcing with a clear objective of optimising cost synergies.

Alliances and buyouts have become the order of the day in the global automotive arena since companies have figured out that it makes little sense to go solo in today’s unpredictable times. It was only natural, therefore, for Fiat Chrysler Automobiles (FCA) to reach out to Renault and explore the idea of a merger.

This naturally made headline news and industry circles waited and watched to see how the story would pan out. Within 10 days of making the proposal, FCA withdrew the offer abruptly and it was clear that this was due to some political issues emanating from the Renault end.

The French government has a stake in Renault (as well as Groupe PSA, which makes the Peugeot and Citroen brands) and was keen that the company also balance out equations with its longterm ally, Nissan. Things have been a little tense between the two in recent months especially after the arrest of its charismatic CEO, Carlos Ghosn. An FCA-Renault merger would have possibly sidelined Nissan and this is something that the French government was not keen on fuelling especially with the relationship already strained with Renault. Will talks resume again between the two European brands? Perhaps they will, especially with what is already on the table now with Ford-VW, but Nissan cannot be ignored, should FCA and Renault get back to talking all over again.

It is also quite clear that maintaining alliances is not a cakewalk by any stretch of imagination.

Ghosn could be a condemned man today but credit cannot be denied where it is due for he singlehandedly kept the Renault-Nissan (and, more recently, Mitsubishi) alliance going for two decades.

One of the many criticisms levelled against him was the absolute control he wielded but the change in leadership following his arrest has done little to indicate that an alternative style will work. Renault and Nissan have had to work doubly hard to improve their relationship and things reach a flashpoint when the FCA merger proposal happened.

For now, it looks as if the partners are keen on putting past differences behind and moving on but it will not be easy for sure.

The Renault-Nissan success story over the decades is significant since it stands out in stark contrast to the Daimler-Chrysler fiasco. Both happened in the late-1990s but one collapsed like a pack of cards while the other grew from strength to strength.

Likewise, VW has had its share of hiccups too when it teamed up with Suzuki in 2009 and it looked as if a new chapter was underway. However, it was only a matter of time before the partnership began imploding and led to bitterness and distrust.

Nobody really knows who was to blame but it is fair to assume that it could have been a clash of egos or a case of one-upmanship. When the divorce finally happened, both VW and Suzuki would have felt quite liberated and relieved.

Suzuki, which has had alliances with the likes of GM in the past, has now settled for a more compatible partner in the form of Toyota. The two have drawn up plans for India, a market where Suzuki reigns supreme. Toyota is, however, the stronger of the two at a global level and this is where there will be a lot of mutual respect going forward.

As Ford and VW kickstart their new innings, they will have to work hard on keeping the partnership robust. Pragmatism is now the order of the day since companies will have to navigate carefully in a new landscape.

If things go well, the sky could be the limit and both VW and Ford may even be keen on taking things to the next level. After all, PSA has reported a dramatic turnaround story with its Opel-Vauxhall acquisition and success stories like these become valuable reference points for the future.

Published on July 18, 2019

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