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VW Considers Second U.S. Plant, Joint Ford Output After Trump Visit

Ryan Beene, Christoph Rauwald and Gabrielle Coppola
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VW Considers Second U.S. Plant, Joint Ford Output After Trump Visit

(Bloomberg) -- Volkswagen AG, trying to win over German car-bashing President Donald Trump at the White House, dangled ideas to expand U.S. auto production and said it may tap Ford Motor Co. to help build its cars in America.

Chief Executive Officer Herbert Diess said Tuesday VW has considered adding a second plant in the U.S., even though the company isn’t fully utilizing its existing factory in Tennessee. He dropped the hint about VW’s burgeoning collaboration with Ford after emerging from White House meetings with peers BMW AG and Daimler AG that were aimed at talking the Trump administration out of raising auto tariffs.

“We need additional capacity here in the United States,” Diess told reporters, adding that the company could use a factory making both VW- and Audi-branded vehicles. “We might use Ford capacity here in the U.S. to build cars for us.”

The White House is looking to whittle down a $30 billion automotive-trade deficit with Germany by increasing production in the U.S., the biggest chunk of an overall $65 billion trade deficit with the European Union. Trump also is smarting from General Motors Co.’s decision last week to close four U.S. plants and cut thousands of jobs, after he’s repeatedly demanded that car companies build more vehicles in America.

Ford Chairman Bill Ford stopped short of confirming Diess’s comments, saying talks with VW are going well but “haven’t gotten that granular.” Because of the nature of the German auto leaders’ visit to the White House, Diess was trying to show VW’s contributions to the U.S. economy, Ford said.

“He was sort of on the spot,” Ford said. “I probably would have done the same thing if I was in his situation.”

Trump’s Cudgel

Diess was joined at the meeting by his counterpart at Daimler, Dieter Zetsche, and BMW Chief Financial Officer Nicolas Peter.

The carmakers have found themselves in harm’s way, with Trump wielding higher tariffs as a cudgel to re-balance trade with both China and the EU. BMW and Daimler are the biggest car exporters from the U.S. to China, while VW’s two most profitable brands, Porsche and Audi, would get hammered if Trump follows through with a potential 25 percent levy on imports from the EU.

“That’s basically why we are here, to avoid the additional tariffs, and I think we’re in a good way,” Diess said.

Shares of Volkswagen and Daimler were each down 0.8 percent at 9:02 a.m. Wednesday in Frankfurt. BMW dropped 1 percent.

Before the White House visit, VW executives had floated the possibility that it could build an electric-vehicle plant in the U.S. But that would be a big risk, given the low market share that both the company and EVs have in the country.

“You would need some indication that demand is going to skyrocket,” Kevin Tynan, an analyst at Bloomberg Intelligence, said by phone. “So maybe they believe that, but I’m not sure you can be completely confident in that forecast just yet. It’s a big commitment for a reasonable amount of demand uncertainty.”

Ford Talks

Ford and VW have been in talks about the German automaker potentially investing in Argo AI, the American automaker’s self-driving technology partner, to jointly develop autonomous cars, according to people familiar with the discussions. The two automakers also are considering tie-ups to produce EVs and share manufacturing in regions around the world, the people have said. In June, VW and Ford said that they were considering a strategic alliance focused on a range of commercial vehicles.

“We are in quite advanced negotiations and dialogue with Ford corporation to really build up a global automotive alliance, which also would strengthen the American automotive industry,” Diess said Tuesday.

Ford is having conversations with VW about working together in a number of ways, and it’s premature to share additional details at this time, said Jennifer Flake, a spokeswoman for the Dearborn, Michigan-based company.

VW, BMW and Daimler have no official role in the talks between U.S. and EU trade officials and stressed this at the end of their meetings. The companies are trying to avoid becoming entangled in the negotiations, but they accepted the invitation extended by a Trump administration eager to jump-start progress on its highest priorities.

“We weren’t here as a trade delegation,” Zetsche said.

Trump’s Vision

All three carmakers met separately with Trump’s key lieutenants on trade, including Ross, U.S. Trade Representative Robert Lighthizer and economic adviser Larry Kudlow, before a joint meeting that followed. They then met with Trump in the Oval Office.

“The president shared his vision of all automakers producing in the United States and creating a more friendly business environment,” Lindsay Walters, a White House spokeswoman, said.

Daimler, the maker of Mercedes-Benz luxury cars, builds vehicles in Tuscaloosa, Alabama, shipping many of its SUVs made there to China. The company employs some 3,700 workers at the U.S. site, which can churn out more than 280,000 GLE and GLS SUVs and C-Class sedans.

BMW exported more than 272,000 vehicles from the U.S. last year -- almost 25,000 more than it imported -- and is the only auto manufacturer that produces more cars than it sells in the country. It’s also the largest auto exporter by value in the U.S.

BMW reiterated Tuesday that it may build a second factory in the U.S. that would make powertrains and supplement its SUV factory in Spartanburg, South Carolina, which is its biggest worldwide. It plans to invest 600 million euros ($680 million) in the plant by 2021 and create 1,000 jobs.

--With assistance from Laura Curtis, Keith Naughton and Oliver Sachgau.

To contact the reporters on this story: Ryan Beene in Washington at rbeene@bloomberg.net;Christoph Rauwald in Frankfurt at crauwald@bloomberg.net;Gabrielle Coppola in New York at gcoppola@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net, ;Craig Trudell at ctrudell1@bloomberg.net, ;Anthony Palazzo at apalazzo@bloomberg.net, Cecile Daurat, Melinda Grenier

For more articles like this, please visit us at bloomberg.com

©2018 Bloomberg L.P.

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