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More than a tune-up

22 May 2020 By Antony Currie, Christopher Thompson

The brouhaha about President Donald Trump not always wearing a mask while visiting a Ford Motor plant on Thursday may provide the carmaker’s embattled boss with a welcome distraction. Friday marks three years since Chief Executive Jim Hackett took the wheel from ousted predecessor Mark Fields – and he has had a rough ride: Ford has lost half its value during his tenure, plummeting to $22 billion, compared to General Motors’ 23% drop. A merger with Volkswagen could be the way forward.

The two rivals are already collaborating on electric and autonomous vehicles. It’s a decent way to share the huge costs of developing the next generation of cars. But it doesn’t solve their respective weaknesses.

The U.S. market has been $75 billion Volkswagen’s weak link for a long time. In 2019, the German automaker’s market share in light vehicles was a mere 4%, according to Jefferies, including the Porsche and Audi brands. Joining forces with Ford would give the two almost a fifth of U.S. sales, rivaling GM.

Ford, meanwhile, has struggled to turn a sustainable profit in Europe and has stumbled in China. By contrast, the latter is VW’s most significant single market, accounting for two-fifths of its global vehicle deliveries. A merger would make the new company the largest carmaker in the world by volumes sold.

A deal would be financially compelling, too. Assume a VolksFord combo can cut the same 2.4% of overall costs as Fiat Chrysler Automobiles and Peugeot are for their tie-up. That’d save nearly $10 billion a year. Taxed and capitalized, those could be worth $65 billion once restructuring costs of $14.5 billion are subtracted, equal to around two-thirds of the automakers’ current combined market value.

Both companies have convoluted family ownership, though. The Porsche-Piech families hold 53% of VW votes, while the Fords control 40% of the company thanks to supervoting stock. Resolving that to both sides’ satisfaction presents a major stumbling block to striking a deal. Were they to succeed, VW Chair Herbert Diess could end up driving a more powerful model – and Hackett will have found a graceful exit.

 

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