By Published on .

SaO PAULO-The failed experiment between Ford Motor Co. and Volkswagen AG to conquer Latin America did succeed in one regard-it taught the carmakers the pitfalls of joint ventures in new markets.

The much-heralded marriage of Ford and VW announced in mid-1986 in Brazil and Argentina was one of convenience. Both competitors already operated there -unprofitably. The inspired idea was to merge production, operations and negotiating muscle to create hybrid cars using the two companies' strengths: VW's advanced technology and Ford's financial savvy.

But neither partner accounted for events that proved Autolatina's late '94 downfall after seven years, including fiercely independent dealers, a serious corporate culture clash, changes in Brazilian laws and a tepid market for hybrid vehicles.

"The world has changed since the formation of Autolatina," said Ford VP Wayne Booker, formerly director of Ford's Latin American operations.

At the time Autolatina was started in 1986, Ford had a 22% share of the 886,729-unit market in Brazil, which has now dipped to 11.7%. VW had done much better, with a 1986 share of 37% which stands at 32.1% of a 1.2 million-unit market today.

At Autolatina's launch, Ford was caught in a dilemma. The company was unprofitable, but pulling out of Brazil would have cost the company an estimated $2.5 billion, due to a complex but punishing dealer indemnity that Ford would have been required to pay.

The German automaker, meanwhile, was at the cutting edge of technology but lacked the stringent financial controls that its U.S. counterpart had masterminded in Latin America. VW had spent years coddling its powerful dealer network and suppliers to the detriment of its bottom line in Brazil.

The solution, Autolatina, created a giant with $4.7 billion in sales and 60,000 employees in 1987.

But several hybrid car models produced by Autolatina flopped. The most spectacular bomb was the Apollo, essentially a VW version of Ford's Verona sedan. More than 13,000 Apollos were sold in 1990, its introductory year. Sales had slowed to 10,136 before the model was discontinued in 1992.

The disastrous Apollo touched off a war at ASSOBRAV, the 700-member VW dealer network in Brazil. The powerful network balked at the planned introduction of a new cross-over model based on the chassis of VW's successful Gol subcompact. The idea was scrapped.

Autolatina also suffered major setbacks after ASSOBRAV rejected the merged company's Floor Plan program in 1988. The Floor Plan, used by Ford's dealers, required the dealer to pay for new cars as soon as they reached the showroom. VW's practice, however, was that dealers' stock needn't be paid for until the car was sold. ASSOBRAV's reaction was so strong the association threatened to take Autolatina to court, causing the company to back down on the plan.

"Shared platforms [chassis, engine and transmissions] made sense back then," when Autolatina was formed and the chase for a world car was on, said Mr. Booker last October. "But now their advantages are much less" as more automakers strive for local versions of world cars.

Meanwhile, one of Autolatina's reasons for being evaporated when Brazil's ban on imports collapsed in 1990 and a severe tax of 85% imposed on imports in its stead had been steadily decreasing to about 20%. In addition, Brazil's new currency, the real, appreciated in value against the dollar, enabling carmakers to bring in models from abroad at competitive prices.

A more basic but no less serious problem with Autolatina was cultural strain between the straitlaced Germans and the more freewheeling Americans. "There were good intentions behind Autolatina's formation but they never really overcame the VW-Ford culture shock," said Gunnar Keseberg, managing director of Roland Berger, a German automotive consultancy here for VW and Autolatina.

For all its problems, however, Autolatina remained profitable right to the end. The venture produced $8 billion in sales in 1994.

Most Popular
In this article: