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Ford Likely to Announce Alliance With Volkswagen to Cut Costs

Zacks Equity Research

Ford Motor Company F will reveal a closer collaboration with Volkswagen AG, which is expected to be announced next week, per Reuters. The alliance between the companies is anticipated to go beyond commercial vehicles, which will aid the companies to reduce mounting costs as they make new technological advancements.

In September 2018, it was reported that Ford and Volkswagen were analyzing partnership options to grow their business and cut costs. Per the recent updates, the companies are about to announce their global partnership during the Detroit auto show, beginning next week. It has already been confirmed by these automakers that no probable merger or equity stake transaction will take place between the two.

Ongoing trade disagreements and economic volatility compelled these automakers to reconsider vehicle manufacturing for the United States, China and Europe. High freight costs are adding to the automakers’ woes, who are already struggling with high investment for developing latest technology to cater to evolving customer preferences. Further, cash-rich companies launching their own autonomous cars are adding competitiveness in the market.

Ford Motor Company Price and Consensus


Ford Motor Company Price and Consensus | Ford Motor Company Quote

The framework of the coalition between Ford and Volkswagen will include autonomous technology, Volkswagen’s investment in Ford, and Ford licensing Volkswagen's MEB electric vehicles platform. Discussions are still on to determine the scope of collaboration for electric and self-driving car technology. Additionally, Volkswagen is expected to gain access to Ford’s manufacturing hubs, and Transit commercial van and midsized pickup truck ‘Ranger’.

In the last week, many prominent automakers announced their U.S. auto sales volume for 2018. During the year, Volkswagen’s sales rose 4.2% year over year to 354,064 vehicles while Ford witnessed a decline of 3.5% to 2.5 million. The sales decline for Ford is partly due to dropping passenger car sales and lower-than-expected sales of SUVs, trucks, and vans.

Apart from its struggling position in the United States, economic slowdown in China and Europe are other headwinds for Ford. For 2018, the company lowered its earnings guidance to $1.30-$1.50 from $1.45-$1.70 mentioned earlier. Dropping sales in China and Europe, along with high costs incurred in 2018 owing to tit-for-tat tariffs, compelled the company to cut the outlook for 2018 by almost half.

Price Performance

Over the past three months, shares of Ford have lost 1% compared with the industry’s increase of 10.5%.


Zacks Rank & Stocks to Consider

Ford currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader auto sector are Bridgestone Corporation BRDCY, Genuine Parts Company GPC and Fiat Chrysler Automobiles N.V. FCAU, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bridgestone has an expected long-term growth rate of 4.7%. Share price of the company has increased 4.7% in the past three months.

Genuine Parts has an expected long-term growth rate of 5%. Over the past three months, shares of the company have gained 1.5%.

Fiat Chrysler has an expected long-term growth rate of 25.3%. Shares of the company have gained 2.2% in the past month.

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