Ford Motor (F) and Volkswagen (VOW.Germany) provided more details about their global partnership agreement Tuesday morning—an agreement that is all about the car business of the future. The two automotive giants will collaborate on electric cars, autonomous vehicles and shared mobility services.
The partnership is all about costs too, because developing this new technology is going to be very expensive. VW CEO Dr. Herbert Diess told investors on the conference call that the rapid pace change in the automotive industry is going to require large capital commitments.
But Diess may have disappointed some investors when he ruled out Ford and VW cross equity ownership. It appears a blockbuster automotive merger isn’t in the offing soon.
On the surface a match between Ford and VW match makes sense. Ford is strong in the U.S. and VW is strong in Europe and China. Ford is a dominant truck maker and Volkswagen has higher operating margins making more sedans. VW and Ford will also jointly develop light trucks and vans.
Deloitte global automotive practice leader Joseph Vitalle told Barron’s in an interview at the North American International Auto Show that “large car mergers generally don’t work. It’s tough to get cost benefits, Countries are sensitive about their car companies and often sit on the boards of those companies.” He went on to explain that a manufacturing job generates about seven additional jobs in an economy. That’s another reason that car manufacturing often becomes a political issue.
Don’t expect near-term earnings estimates to change though. Ford CEO Jim Hackett explained that partnership benefits will start to accrue in 2022 to 2023.
New car technology is exciting. Exciting and expensive. That’s why there are likely to be more partnerships announced between global auto makers designed to share platforms and plants in the future.
The benefits of new partnerships will be difficult to quantify. But hopefully, shared costs can raise returns for auto makers over time and that could improve valuation multiples. Ford trade for just 7 times trailing earnings per share. Its stock has gained 0.9% to $8.91.
Write to Al Root at allen.root@dowjones.com