[Quest:] The multibillion dollar car share scheme, the former arch rivals Volkswagen and Ford are coming closer together to build electric and self-driving cars. Now, Volkswagen is putting up $2.6 billion into Ford's autonomous vehicle company Argo. Ford says it will use VW parts in its future electric cars. Julia Chatterley spoke to the CEOs of both firms.
[Herbert Diess, Ceo, Volkswagen:] Autonomous is really big thing for all automotive and also for the whole industry for transportation. And it's big investment. It takes a long time. It's huge resources being put in. It's a race. So you have to be probably not first but first, second or third. And it requires a lot of resources. We decided that it makes sense to join forces with someone first and then later, we decided that Ford would be the appropriate partner. Ford combined with the startup team makes us really competitive
[Julia Chatterley, Cnn International Anchor:] Ahead of the race, now, Jim, do you think in this?
[Jim Hackett, Ceo, Ford:] Well, I think the way you have to think of this technology is it learns. And so if you get it in a scale world, it is going to learn faster. So this is how platforms kind of win or lose. And so I'm really excited about the news that VW and Ford now have the largest platform potential with this emergent technology.
[Chatterley:] And then you said cars embedding this technology in Ford cars by 2021, Elon Musk said autonomous taxis by 2020, a million of them on the road. You're both smiling. Is that too ambitious? Or can we talk in this kind of timeframe? Where do we need to set our horizons here?
[Diess:] I would be bit more conservative. I don't know.
[Hackett:] I am nodding. I agree.
[Diess:] Many problems still unsolved. Weather conditions, complexity of environment. Safety, safety, safety. There's a lot in stake. And I think there's some progress made. Yes. But I will see. My estimation is that we will see two next hardware generation until we really succeed, so it's a long way to go.
[Chatterley:] There's many challenges for the industry. It's an exciting time. It's a challenging one. Trade of course and potential crossfire between the two nations. As a European car maker, do you see this move and the closer ties with a U.S. company like Ford as political insurance here?
[Diess:] It has a political aspect as well. Also, I have to say the business logic which drives us know combining our light commercial vehicle business worldwide, but focused on Europe, Latin America, South Africa makes a lot of sense. The rationale behind this is solid, I would say. Also joining forces on the EV business makes a lot of sense. This is going to happen here in America, combining our resources makes us hugely competitive and EVs, I would say we can disclose the same figures. But I have to say yes, we are relatively weak in America. We are a small player, about four percent market share. We are very big in China, 18 percent market share and becoming more American, more of an American player and also part of this American society is an important rationale for us.
[Chatterley:] Mary Barra over at GM came under severe pressure from President Trump, as a result of some of the cutbacks that she said were necessary in order to transition to meet customer demands in the future. Do you think his sort of big giants in this industry, the CEOs, that you kind of need to all stand together and defend the industry at this moment?
[Hackett:] Go ahead. I'm near that argument, you know, constantly inside Ford, because as we were changing the portfolio of products, we thought there's a number of interests that you have to balance not only shareholders, but the employees. We're an egalitarian culture. Ford has always kind of live this way. So we were able, as we were changing the portfolio to shift workers in production around so that there weren't any casualties of job loss there. The interesting thing in in Europe, though, as we've had to do the same thing, we've had to let go a larger group of people, it hasn't been dealt with for 30 years. So I'm hopeful that we get this right. This won't be the kind of thing that that persists in our industry. But I do think these are moments of inflection. And that's why there's stress on the production and employment is because the technology is changing.
[Chatterley:] Have they become a political football, too?
[Hackett:] There's so many jobs associated with our category. And I think that's where the President's got the right attitude is that, he is really, that constituent needs protection, because these are such important jobs.
[Chatterley:] Our next debate for CNN is going to be held in Detroit. What do you want to hear politicians, whether it's President Trump or whether it's the Democrats here saying about the industry, because we've had criticism from both sides, for U.S. companies trying to retrench here and trying to face the future?
[Hackett:] Well, from my perspective, I've looked forward to hosting them in Detroit because this is an important renaissance in our city there that Detroit has really come a long way. The automotive industry has had a big hand, of course, in its creation, and now its resurgence. For example, Ford has invested downtown, in the old train station. We're going to rehab that in an area called Cork Town. My message to them is, you really need to understand the kind of innovation investments that we face. And if we hedge any of that, you know, if we make it difficult, we will lose to countries like China or states in my case that are more technically savvy. So they've got to understand the degree of shifts that are happening with propulsion and autonomy, and make it easier. We have legislation that has to be passed to make the regulatory environment better. We have to have incentives, because some of this investment is way ahead of the demand. These are things that I hope they give.
[Chatterley:] And Herbert, as a European CEO that wants to sell more cars to U.S. consumers. What do you want to hear from these guys?
[Diess:] I would say, as a European CEO, our footprint is really global and free trade is what we need also to get the best cost for the best price to the customers. Customers will be very happy to get the best possible car, and also cars in the future, even if they are then being able to drive along autonomously or electric that doesn't change this role model, so free trade is really necessary to get the best cars and the most competitive industries.
[Quest:] Two CEOs talking to Julia Chatterley, CNN's Peter Valdes-Dapena is with me. This is the way in which these car companies and it's pretty much only in the car company area that we're seeing such tie ups of rivals, why are they doing it?
[Peter Valdes-dapena, Cnn Business Senior Auto Writer:] Well, the auto industry even in the best of times, ever is a tough capital intensive industry. We invest a lot in new products and new crossovers and SUVs. But now you have this other big change happening as well. You've got competitors like WayMo, Tesla, and tech companies out in California, threatening to take over the new generation of vehicles. So companies have to prepare for that while at the same time maintaining their investment in their current products. So in order to get to that future stuff that's not really profitable yet, but they need to do. Well, then it make sense to start doing team ups like this.
[Quest:] Yes, but it's you're teaming up with your competitor. I mean, at the end of the day all right, so I suppose you start looking at which competitor is least competitive in a particular market as such.
[Dapena:] Which one has the right kind of overlaps and not overlap, if you will, right?
[Quest:] Exactly. Because Volkswagen and Ford, arguably Europe and the United States, the VW does well in this country.
[Dapena:] The VW does okay in this this country. They're certainly doing better. They have a nice factory in Chattanooga. They've got some good products in Europe, but they could use some help in Europe with commercial vans, which you might remember was the first part of this tie up. Ford supplying commercial vans to Volkswagen, so it goes back and forth.
[Quest:] So why didn't the car companies get into bed more with the tech companies? Because there you have perhaps a natural alliance, where you do bring different skills, these two competitors just basically agreeing that my enemy, the enemy is my friend.
[Dapena:] Right. Well, you're right there, the enemy is my friend. But also there are more ways to work together I think, when you're talking about vehicle companies. There's more understanding. There's a sort of a common language that you both understand and speak. I don't mean English and German, but auto industry, language and production language. So I think there's a lot more synergy there than there is necessarily with a tech company.
[Quest:] Good to see you, sir. Thank you very much indeed. Thank you. Have a good weekend. It has been a rough week. Europe's economic powerhouse. Now, if you're just Germany we're staying with cars because particularly of course in Germany, if you look at the headlines, they make grim reading for Germany's once untouchable giants on the economy. Daimler, for example, profit warnings, the fourth in a year. Four from Daimler in a year and a massive quarterly loss. BASF says it's also losing and they're going to have huge and a huge embarrassing retreat by Deutsche Bank, not only retreating from equities, but also 18,000 jobs to go and add in Bayer, and you've also got facing more lawsuits over its subsidiary, Monsanto, makers of the famous weed killer Roundup. According to "The Wall Street Journal," a third of all DAX companies have announced profit warnings, job cuts and have legal or have legal issues. It's not surprising that over the course of a week that have seen markets rally on both sides of the Atlantic, the DAX has been down pretty much consecutively all week. If you add in the trade war, then when Germany suffers, so does everybody else. The 2020 Eurozone growth is now being cut. All right. It's not a huge from what 1.5 to 1.4 percent, but it is a bellwether, when Germany's economic machine suffers, everybody else does, too. Carsten Brzeski is the Chief Economist at the German arm of ING Bank. He joins me now from via Skype from Frankfurt. These warnings and this downgrade of growth. This is starting to get of great concern, because Germany is the industrial engine for a large part of European growth.
[Carsten Brzeski, Chief Economist, German Arm Of Ing Bank:] Definitely, I think it's getting bleaker and it's getting serious now. I think, you know, when you look back, Richard, a year ago, everything was still fine. Now, we've gone through a downswing, a downturn of the entire industry since the summer of last year until now. It started off with a couple of one-offs. Strange, strange apologies like in the car industry, too little water in the rivers. But now it's getting serious. We now start to see there are layoffs. And it starts affecting the domestic economy, which up to now has shielded Germany from a downswing. But we see a weakening of the labor market. We see a drop in consumption. And this is why I'm really getting worried about the state of the German economy.
[Quest:] Okay, so we saw a rebound in numbers in the last quarter, but I was reading your note on that, you said that's just a sort of a bit more of inventory buildup from a rundown, and actually, the improvement in the economic performance is not likely to be sustainable.
[Brzeski:] No, because up until now, we had solid domestic fundamentals and there was strong consumption. There was even the hope that companies would start to invest more due to digitalization, due to low interest rates, and they should have led to a pick up and the rebound in growth in the second half of this year. We now see that the structural problems in the industry, plus the continued uncertainty coming from trade means that companies and also households are somehow you know, drawing back their investment and consumption plans.
[Quest:] So what policies can be put in place? Obviously, the ECB is continuing its QE at a phenomenal rate and will do so for the foreseeable future. But if you look at fiscal policy, notorious, the Germans won't spend. Is it time to unlock some of that prudence?
[Brzeski:] Oh, it definitely is. I think in the short run, everyone will look on the ECB and I think Mario Draghi will once again deliver. We will see further easing like what had been announced from the Fed, probably I guess, a rate cut, maybe a restart of QE, but this one won't make a big difference. What could make a big difference in Germany and in the rest of the Eurozone would be fiscal stimulus. So Germany will have to change its mind. There still a high fiscal surplus in Germany. There are negative interest rates. So you know, investors are giving money to Germany in order to borrow from the government. So this will have to change, otherwise, we're going to see really a longer period of stagnation and they continue forward with recession.
[Quest:] But, Carsten, as long as I can remember, if you go back to the former Finance Minister, they didn't want to spend and every time you suggested fiscal stimulus, it was almost as if you'd suggested doing something indecent.
[Brzeski:] It is the holy black zero, the fiscal surplus. But listen, the situation is getting more severe. And now, really, once this industrial slowdown really hits the domestic economy, it starts hitting the labor market, count on it, the government will do something. It will never do as much as economists would like it to see. But I think we will see a gradual shift towards more fiscal spending.
[Quest:] Carsten, great to have you on the program. Thank you. We will need your help in the weeks and months ahead to understand what's happening in Europe's largest economy. Thank you, sir. It's appreciated. Have a good weekend. The stage of uncertainty of a trade is one of the factors that kept European markets well and truly under pressure this session. Well, the season overall. London and Frankfurt closed flat. But remember, that is I think, unless I'm mistaken the DAX has been down every day this week. Paris eked out a modest gain. Zurich was the worst performance by far. Investors reacted to soft data on Chinese trade. This is QUEST MEANS BUSINESS, a day in which we are looking at potentially three records across all the major indices in New York.