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Why Are Ford and GM Working Together?

By John Rosevear - Apr 15, 2013 at 5:20PM

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GM and Ford announced on Monday that they would work together to develop a new line of transmissions. Sound crazy? It's not: They've done it before, and it makes good business sense. Here's why.


The new Ford Fusion uses a transmission developed jointly with GM. Photo source: Ford Motor Co.

Dogs and cats engineering together?

Ancient rivals General Motors (GM 3.07%) and Ford (F 3.89%) announced on Monday that they will develop – together – a new line of transmissions.

These aren't just ordinary transmissions. Continuing a trend of adding ever more gears in pursuit of ever more fuel economy, the two automakers say they are planning a series of nine- and 10-speed automatic transmissions.

The new gearboxes will be built in front- and rear-wheel-drive versions, for use in cars, SUVs, and pickups. Both automakers hope that the new transmissions will help them keep pace with fuel economy regulations, which are set to get tighter and tighter in coming years.

And both automakers obviously hope that the higher-tech transmissions will help them keep pace with global competitors.

But speaking of competition, Ford and GM are among the fiercest of rivals: Why would they collaborate on something like this?

Sometimes, working with your enemy makes good business sense
Collaborations like this may sound unusual, but they aren't unheard-of, even in the hyper-competitive global auto business. Ford is working with Toyota (TM 0.79%) on a hybrid powertrain for future pickups and SUVs, for instance, and there are plenty of other examples.

This is actually the third time in the last decade that Ford and GM have collaborated on transmission development. Prior efforts have yielded some good units, like the six-speed automatic transmission that Ford currently uses in its hot-selling Fusion sedan, pictured above.

But why develop them jointly? Transmissions are complex, high-tech units that are important to a vehicle's performance but not really part of its unique brand character for the most part (unless they don't work well, but that's another story). As such, it's not a big deal to share costs and efforts with a rival, because it makes sense to get the broadest possible economies of scale for the units – and to join forces to reduce development time of new high-tech versions.

There will still be differences, of course. Each company will develop its own control software, the "special sauce" that determines exactly how the transmission will operate in a given car or truck. And each company will build its own transmissions in its own factories.

But the two automakers say that they will seek to keep the internal mechanical parts identical between both companies' versions, so as to keep costs down by maximizing economies of scale. That will give both automakers a competitive advantage in markets around the world: Better technology, faster and cheaper.

The upshot: Higher tech, sooner
Long story short, by joining forces, Ford and GM both get the new high-tech transmissions that they'll need to keep pace with tightening fuel economy regulations around the world. They'll get them faster, which could be an advantage as global competition continues to tighten. And they'll get them for less money, which will help them keep costs down at a moment when both are looking for ways to improve profit margins.

I don't see any downside here. Do you? Scroll down to leave a comment and let me know.

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Ford Motor Company Stock Quote
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