F Ford Motor Company

By William Boston 

Ford Motor Co. and Volkswagen AG have agreed to build a global manufacturing alliance that the auto makers said could create nearly $1 billion in annual savings after 2023.

Initial efficiencies would come through sharing production and technology for medium-sized pickup trucks and VW's popular city vans, followed by broader cooperation in developing electric and self-driving vehicles, the companies said in an agreement presented Tuesday on the sidelines of the Detroit Motor Show.

Ford CEO Jim Hackett and VW CEO Herbert Diess said the deal was just the beginning of potential collaboration on a range of projects, including bundling their development of self-driving vehicles, which auto makers consider a key technology in the future. Talks on these were under way and going well, the executives said.

"Over the course of negotiations we constantly broadened the scope of discussions," Mr. Diess told reporters. "We believe we can explore further collaboration opportunities in exactly those fields that will be pivotal for future success in the auto industry."

Ford shares were down 1% in midday trading. VW shares were trading 1% higher.

The agreement comes as auto manufacturers increasingly cast aside old rivalries to share the enormous costs of developing new technology, aiming to lower the risks associated with developing and launching electric and self-driving vehicles.

The success of the Ford-VW alliance isn't guaranteed. The global automotive landscape is littered with failed partnerships, highlighted most recently by the differences between the management of French car maker Renault SA and its Japanese partner Nissan Motor Co, which share a global alliance with Mitsubishi Corp.

But as the automobile morphs into a smartphone on wheels, auto makers are forging more joint ventures and alliances to defray the costs and risks of developing the requisite new technology.

General Motors Co. and Honda Motor Co. said last year that they would jointly develop a self-driving car, a pact under which Honda committed to investing $2.75 billion in GM's Cruise driverless car program. The companies have also collaborated for years on developing fuel-cell technology to power vehicles.

Under its agreement with VW, Ford will produce light commercial vehicles and medium-sized pickup trucks for both companies, expecting to launch the first vehicles by early 2022. VW will in turn produce city vans for the venture.

Ford would initially save $500 million a year starting in 2023, said Jim Farley, a senior executive in charge of global markets. Volkswagen said it was targeting about $400 million in savings.

Investors had hoped Ford and VW would present much more detail about their plans in Detroit.

Evercore ISI analyst Arndt Ellinghorst called the deal "a step in the right direction" to address investor concerns about the large capital outlays car companies must spend on low-margin parts of their businesses, such as gas-powered commercial vans. Still, the lengthy timeline for any lift from the alliance may not sway investors currently worried about a slowdown in the Chinese market and trade tensions, he said in a note.

--Mike Colias contributed to this article.

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

January 15, 2019 13:07 ET (18:07 GMT)

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