Ford Expands Partnership Negotiations with VW and Mahindra to Reduce Costs

DEARBORN, Michigan (Reuters) – Ford Motor Co.F.N) CEO Jim Hackett has assembled the top 300 automaker leaders near its Michigan headquarters for a global meeting.

Hackett's message: Ford must implement plans to restructure its operations now in order to obtain promised cost savings, Ford officials at the meeting said.

"We have clear goals and now is the time to act," Hackett told Reuters in an interview.

A key element of the money-saving plan is for Ford to deepen its partnerships with other automakers around the world to share production capacity and develop vehicles together, Ford officials told Reuters.

Specifically, they stated that Ford was in talks with Germany Volkswagen AG (VOWG_p.DE) and Indian Mahindra (MAHM.NS) on expanding product and technology alliances.

With Volkswagen, discussions are focused on how to broaden the reconciliation of previously announced commercial vehicles to include collaboration in South America and Europe – where Ford is losing money – and co-develop other types of vehicles. sources close to the thought of Ford who asked not to be identified.

Pablo Di Si, general manager of Volkswagen in Latin America, told Reuters that the companies are studying a partnership in Brazil and that the negotiations are "progressing positively", even if he did not expect an announcement before 2019.

A spokesman for VW declined to comment on the alliance talks.

An expanded alliance would give Volkswagen access to some of Ford's most profitable vehicles, including Transit commercial vans and Ranger compact vans, both sources said. VW could also help Ford strengthen its South American and European money-losing operations by combining vehicle production in these markets, the sources said.

Separately, product-sharing negotiations are ongoing with Mahindra & Mahindra, including the use of the Indian automaker as a benchmark for reducing supplier costs in the region, two other people were told about Mahindra's plans. The first vehicle of the platform that they jointly develop will probably be launched in 2020, they added.

A spokesman for Mahindra did not respond to a request for comment.

The double effort is aimed at helping to redo Ford at the same time as the $ 11 billion restructuring planned for the next three to five years. Ford must improve its profitability as it invests billions of dollars in the development of electric and autonomous vehicles and is preparing for a major product rollout over the next two years.

Graphic: tmsnrt.rs/2xKteeb

Hackett, who recently spoke with Volkswagen and Mahindra executives, told Reuters that the alliance talks were proceeding well and were very promising for Ford. He declined to comment on specific transactional structures being discussed or locations, however.

Broader product and cost-sharing agreements with Volkswagen and Mahindra could allow US # 2 automaker to reduce the number of vehicles it builds and reduce engineering and purchasing costs, said Ford executives.

According to two sources close to Ford, vehicle architecture, combined with the proliferation of electric vehicles, would help Ford reduce the number of facilities and employees it needs for this work.

These measures aim to help Ford achieve its goal of doubling pre-tax profit margins to 8% by 2020, compared to 4.3% in the second quarter of this year.

Hackett remains under pressure to show results. The stock is down about 24% this year.

"Hackett's job is really to reduce costs," said Edgar Wachenheim III, president of Greenhaven Associates, which is Ford's ninth largest investor with nearly 33 million shares at the end of June. "You have this possibility that Hackett can eliminate the $ 4.5 billion of losses (in its weakest operations) that were there in 2017 and that profits will increase."

Demand for capital in the industry has never been greater, Executive Vice President of Ford, Joe Hinrichs, told Reuters at the company's headquarters near Detroit.

"A great opportunity is to leverage the strengths of others," said Hinrichs, President of Global Operations, about alliances. "There are plenty of opportunities to share capital, to share engineering resources."

Ford and Volkswagen said in June that they are discussing the possibility of jointly developing and building a range of utility vehicles, including pickup trucks. The commercial vehicle business is a "quick win," said Hau Thai-Tang, Ford's executive vice president of product development at Ford.

"If you look at paper, we complement each other very well," he said of Ford and Volkswagen. "There are opportunities for synergies without going overboard."

The alliances also offer automakers the opportunity to share costs, said Hinrichs.

"Everyone wants more use of capacity, but they want someone else to live up to their abilities, so we need to fix it," he said.

In Europe, the Ford Mondeo sedan and the S-Max, C-Max and Galaxy minivans are about to be phased out after a few years, according to two close associates. This will eventually lead to capacity reductions and job losses in assembly plants in Valencia, Spain and Saarlouis, Germany.

The level of optimism at last month's executive meeting on Ford's transformation was high, and these leaders now want to get the message out to employees, according to Ford's Thai-Tang.

"We have the right plan," he said. "We must now execute and execute quickly."