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Ford (F) Plans to Extend Alliance With Volkswagen, Mahindra

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Ford Motor Company (F - Free Report) plans to extend partnership with other carmakers in order to restructure its business and cut costs, per Reuters. The company is in talks with German automaker Volkswagen AG (VLKAY - Free Report) and Mahindra and Mahindra Ltd. based in India to expand alliances and develop products.

Ford plans to share manufacturing plant floor capacity as well as develop vehicles with its partners.

The company is having discussions with Volkswagen to expand their previously announced commercial vehicle tie-up to Europe and South America, where Ford is already struggling to generate profit. Apart from commercial vehicles, the companies will develop other vehicle types. Per Volkswagen’s management, the companies are talking about a partnership in Brazil. However, the announcement regarding the partnership is not expected before 2019.

Ford Motor Company Price and Consensus


The extended partnership would enable Volkswagen to access a few of Ford’s profit-making models, which include Ranger compact pickup trucks and Transit commercial vans. On the other hand, merging vehicle manufacturing is likely to aid Ford to strengthen presence in South American and European markets, where it has been making losses.

In parallel to this, Ford is in talks with Mahindra to combine manufacturing platforms. This will enable the companies to lessen supplier costs in the region. The first product from the joined platform is likely to launch in 2020.

Per management, increased product range and cost-sharing through these plans will help Ford to reduce contract engineering and purchasing costs related to manufacturing vehicles. Further, these moves will assist the company with its $11 billion restructuring plan, spanning over three to five years. Additionally, it also set a target of doubling up pre-tax profit margins to 8% by 2020 from 4.3% recorded in the last-reported quarter.

Price Performance

In the past three months, Ford’s stock has lost 18.2%, underperforming 10.5% decrease recorded by the industry it belongs to.


Zacks Rank & Key Picks

Ford currently carries a Zacks Rank #5 (Strong Sell) while Volkswagen has a Zacks Rank #4 (Sell). A few better-ranked stocks in the auto space are AutoZone, Inc. (AZO - Free Report) and CarMax, Inc. (KMX - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AutoZone has an expected long-term growth rate of 12.2%. Over the past three months, shares of the company have gained 16.2%.

CarMax has an expected long-term growth rate of 14.8%. Shares of the company have increased 1.3% over the past three months.

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