GM and Ford Draw Battle Lines

Competition is coming from all angles as the U.S. auto market has become the bright spot in the global picture. Europe is a disaster, and Japanese automakers have eyed the U.S. since a territorial dispute had sunk sales in China the last quarter. Even with the extra competition, and Chrysler's Ram pickup's gaining ground, it comes down to two truck juggernauts, Ford (NYSE: F  ) and General Motors (NYSE: GM  ) . Here's why they'll be battling to be top dog in truck sales. Adam Jonas, an analyst at Morgan Stanley, said that Ford's F-series, the best-selling model in America for over 30 years, accounts for an estimated 90% of Ford's profit globally. For GM, the story is similar, as the Silverado and Sierra equal roughly 60% of GM's profit globally. 

GM and Ford will be battling for the most profitable segment of the U.S. auto market with the 2014 Silverado and the next generation F-150. For the first time, one is taking a huge risk with its next truck. Let's look at factors which will have a critical influence on which company comes out of this battle victorious, and reveal why one company is taking a big risk.

GM changes look and message
GM's execution over the next 18 months will be absolutely critical for its future success. It's lost market share, recently accounting for only 17.9% of car and light truck sales in the U.S., its lowest mark in decades. It plans to get market share back by refreshing a huge chunk of its vehicle portfolio. This year alone, GM is releasing 13 new or redesigned models in the U.S. Three of the focal points of the 2013 North American International Auto Show are the 2014 Corvette Stingray, Cadillac ATS, which won the car of the year award, and the 2014 Chevy Silverado. Those represent a muscle car that aims to bring excitement and buzz back to a dull brand image, a luxury car focused to take advantage of rising transaction prices, and the Silverado that will battle to be the No. 1 selling truck in the most profitable segment of the U.S. auto market. A good start, no doubt, but vehicles don't sell themselves. Let's take a peek at GM's new marketing campaign.

GM's last slogan and campaign, "Chevy Runs Deep," didn't run very far, or very long. The slogan, released in fall 2010, failed to create excitement or meaning with consumers. It also didn't translate well, limiting its effectiveness globally. Now with a portfolio refresh under way, GM has decided to press the reset button on that campaign, replacing it with "Find New Roads." It's supposed to represent a change in corporate culture by finding ingenuity and challenging oneself every day. GM hopes "Find New Roads" will have the lasting success that Ford's "Drive One" accomplished.

Battle line: F-150 vs. Silverado
Truck profits are what keeps the lights on in Detroit, and the 2014 Silverado will play a huge role in determining whether GM's portfolio turnaround is a success or not. Production is slated to begin in the second quarter of 2013 and be in showrooms by mid-2013, giving it at least a year head start against the next generation F-150.

As CAFE standards rise and consumers prefer better fuel efficiency, these two will be battling for market share with different strategies. The new Silverado merely takes the next step with cylinder deactivation, which essentially shuts off extra cylinders when full power isn't required, thereby saving fuel consumption. There is nothing revolutionary there, merely the next logical step. Ford's take on luring fuel-efficient-minded consumers will take a riskier approach with its next-generation F-150. By using aluminum in place of some steel, 700 pounds will be removed from the F-150, roughly 15% of its typical weight. That reduction alone is supposed to make the truck meet CAFE standards through 2020, a 25% improvement from today's model. Combine that factor with the EcoBoost engine that uses a turbocharged V6 engine, to keep all the power of a V8 but offer improved fuel efficiency, and you have a compelling story for the next generation of F-150s.

That doesn't mean this will be a walk it the park; this isn't a mere next step in fuel efficiency, it's a leap ahead. Aluminum has its advantages, obviously it weighs less and, unlike steel, it's more corrosion and rust resistant. One huge risk for Ford is controlling costs. Aluminum requires much more energy to work with, typically making it more expensive than steel. By making such a drastic change, replacing that much steel with aluminum, it's putting its healthy margins and profits on the line. When truck profits represent 90% of the company's profit, it becomes a major gamble.

Another risk for Ford, is convincing consumers that an aluminum truck is as "Ford Tough" as its steel predecessor, no easy task. One way Ford is battling that is by making the truck appear more muscular and durable.


Roughly 59% of truck owners tow and 67% haul, meaning Ford has to prove switching to aluminum has no decreased capacity to effectively tow payloads. The new look will help, but research facts will need to be incorporated in a marketing effort to make this next-generation truck a success.

Bottom line
This is a go big or go home move, one that could reward investors who believe Ford will pull it off. In 2007 the Silverado and F-150 were neck and neck, with Ford holding 16.5% market share versus Chevy at 16.1%. Three months ago the F-150's share surged to 22.8% while the Silverado remained flat, slipping to 16%. Ford CEO Alan Mulally said this "The F-series is the heart and soul of America." If Ford's risk of taking a leap ahead in fuel efficiency using aluminum pays off, then investors will be very well-rewarded by Ford's leap in market share. The battle line has been drawn: Time to pick a side and see who claims dominance in the U.S. market.

Ford has been performing incredibly well as a company over the past few years -- it's making good vehicles, is consistently profitable, recently reinstated its dividend, and has done a remarkable job paying down its debt. But Ford's stock seems stuck in neutral. Does this create an incredible buying opportunity, or are there hidden risks with the stock that investors need to know about? To answer that, one of our top equity analysts has compiled a premium research report with in-depth analysis on whether Ford is a buy right now, and why. Simply click here to get instant access to this premium report.


Read/Post Comments (9) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 23, 2013, at 4:24 PM, rh33 wrote:

    I don't agree that use of aluminum is a "go big or go home" move. Aluminum has been used in vehicles before; this is just using more of it. It's an incremental change and will obviously be appreciated by pickup users who want better fuel efficiency and load capacity. I know many pickup owners, and I haven't heard one object to use of aluminum in some decades.

  • Report this Comment On January 23, 2013, at 4:31 PM, TMFTwoCoins wrote:

    That's fair. Although, it is substantially more aluminum. When you put 90% of your profits and margins on the line with a metal much more costly to work with, it's a fairly gutsy move.

    I have heard some owners expressing concern that removing 700 lbs could hamper ability to tow heavy loads. I'm not worried about it.

  • Report this Comment On January 23, 2013, at 5:48 PM, sheldonross wrote:

    The EcoBoost was a gutsy move, and it's paid off for Ford in droves.

    Meanwhile, the new GM trucks are the antithesis of gutsy, and I think their overly conservative nature will end up costing them. Most people will be hard pressed to tell the new from the old at a glance.

  • Report this Comment On January 23, 2013, at 5:49 PM, TMFTwoCoins wrote:

    100% agree, I mentioned before that I wouldn't be able to tell the new model from the old silverado. I think GM makes a good truck, but their marketing lacks and it's cost them market share.

  • Report this Comment On January 23, 2013, at 6:49 PM, TMFBreakerRob wrote:

    I think your article is pretty good.

    The cost issue with aluminum, though, is raw material cost... which is a multiple of the cost of steel. Yes, welding costs more, but we don't have enough information at this point to assess that impact other than to say that it's much less a factor than material cost.

    Overall, I think Ford will extend it's market share... and profit.... lead. Aluminum is not the only leap forward here, there is also at least one brand new engine that will advance the fuel economy beyond what the aluminum could do by itself.... part of the new "Nano" engine family.

    I think people in the truck market will be shocked by the jump forward this new truck will represent. The others can battle for an increasingly distant second place.

    Sound like hype? Indeed it does, absent real data. As a former employee in the department that develops these vehicles.... I know what I'm talking about. But, you can take it or leave it since I, of course, can't provide the data. :)

    By way of disclosure.... yes, I own Ford stock.

  • Report this Comment On January 23, 2013, at 7:57 PM, TMFTwoCoins wrote:

    Interesting comment, and thanks for the insight. I haven't heard much about the Nano engine family, I look forward to checking into that.

  • Report this Comment On January 23, 2013, at 8:41 PM, NineD930thTA wrote:

    The Ecopoop engine shows 2 things about Americans. #1 they are suckers for good manipulative advertising and do not do their reseach. #2 Most Americans in fact DO NOT tow or haul with their trucks.

    The reason I say this is because the basic purpose of a Turbocharger is to increase forced air as the RPMs increase from more exhaust flow out of the cylinders. If you look at the Ecopoop specs yes it has a lot of horsepower but thats nothing for a truck. Its Torque. The max torque for the ecopoop motor is over 4,000 rpms. WHen you hookup a trailer you need low end torque to get it moving. The Ford doesnt have that.

    Now onto the manipulative advertising remark. The Ford commercial talks about the ecopoop motor and also mentions 23 mpg highway. The 23 mpg highway isnt achieved from the ecopoop motor though they make it seem like it is in the commercial. The 23 mpg highway comes from a base line V-6 in regular cab short bed 2 wheel drive trim. Same as the Ram claim of 25 mpg. WHo buys a 2wd regular cab truck?

  • Report this Comment On January 23, 2013, at 9:25 PM, TMFTwoCoins wrote:

    "Roughly 59% of truck owners tow and 67% haul" - I had multiple sources with that information. If you have statistics otherwise, I'd like to have them for future references.

    Appreciate the comments, though I think the EcoPoop is better than what you credit it for, I did chuckle at the name.

  • Report this Comment On January 24, 2013, at 2:08 PM, sheldonross wrote:

    Nine, to put it simp[y, you are full of sh*t.

    The Ecoboost develops 90% of peak torque at 1700 rpms. Peak torque is around 2900 rpm.

    Numerous comparisons have been done showing the 3.5 out towing the 5.0L Ford.

    The Ecoboost develops more significantly torque from ~1500 to ~5500 than the 5.0. And it develops more torque than the 6.2L from 1800rpm to 3900rpm.

    The 5.0L develops peak torque of about 290ft/lbs at 4200 rpm. The 6.2L develops peak torque of about 435ft/lbs at ~4300 rpm. The ecoboost develops peak torque of 360ft/lbs at 2900 rpm.

    http://news.pickuptrucks.com/2011/04/how-we-dyno-tested-ford...

    So not only is your argument completely incorrect, in reality the exact opposite of what you claim actually happens. The V8 engines need higher revs to out-torque the EcoBoost.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2199998, ~/Articles/ArticleHandler.aspx, 12/19/2014 2:57:44 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement