VW could benefit most in U.S. from Ford alliance

Volkswagen Group and Ford have said they are exploring a development and production alliance for commercial vehicles, and possibly other projects.

Where would it make sense for the two auto giants to join forces?

Ford doesn't break out commercial vehicle sales but claims to be the world's biggest van manufacturer thanks to its Transit range. The company also has a stranglehold on the U.S. pickup market with the F-150. Ford has previously said it doesn't need a van partner (unlike almost every other LCV manufacturer in Europe) because its sales volume gives it enough scale. On the face of it, Ford doesn't need help.

VW is weaker. Its commercial vehicles division had a good year in 2017 with a profit margin of 7.2 percent on unit sales of almost half a million. But is sells no vehicles in the U.S., mainly because its key Caravelle/Transporter model is too expensive to sell there.

Joining with Ford could allow VW to save costs on the next generation and also potentially give the German automaker access to Ford factories in the U.S, thus avoiding the U.S.'s 25 percent import tariff on vans.

VW also needs to replace its expensive Amarok pickup, which launched in 2012. Basing a new generation on the Ford Ranger, Europe's best-selling one-ton pickup, would make a lot of sense.

VW and Ford could use help in South America, with both cars and commercial vehicles. Both have a strong presence in the key market of Brazil (VW was No. 2, Ford No. 4 in the first four months), but both are losing money. VW will only say it's not profitable in the market, declining to go into more detail. Ford lost $784 million in Brazil last year. The two companies had a strategic alliance in Brazil between 1987 and 1995, under the AutoLatina name, so there have a history of working together.

VW in particular is turning around its Brazilian operation with new products, including the launch of T-Cross small SUV at the end of the year. VW and Ford are both benefiting from Brazil's return to growth. But new safety and emissions legislation will make future cars more expensive in a hugely price sensitive market.

Unlike the AutoLatina tie-up, any future collaboration is likely to involve sharing architectures rather than badge-engineering cars. VW is poised to make a decision on rolling out its MQB A0 platform for emerging markets, but it still can't compete on price with Renault-Nissan's CMF-A architecture that underpins low-cost cars such as the Kwid in India. Under its new flexible architecture strategy, Ford is aiming to make one car platform work for it globally, but that is unlikely to be cheap enough to underpin small cars for emerging markets. Jointly, Ford and VW could develop a global emerging-markets platform that could work not just in South America but also India and possibly even China.

Could they collaborate elsewhere? Future technologies such as electric and autonomous driving are such a cash drain that it's impossible to discount a tie-up in those areas. It’s also not inconceivable that the two companies could work together on diesel engines. As the market for diesels continues to fall in Europe, automakers will need to seek out partners to develop ever-cleaner engines for vehicles that will continue to need diesel engines, for example vans.

What about niche, or margin-squeezed car lines such as city cars or minivans? Ford and VW worked together to produce the Galaxy/Sharan minivan previously and could do again. Ford also has an orphaned car in the Mustang that requires its own rear-drive platform. Could it share a platform, for example VW Group's MLB? This seems unlikely, but as automakers search out ever more cost-efficiencies to make them leaner going into an uncertain future, nothing should be ruled out.