Ford's (NYSE: F ) F-Series has been the best-selling truck for 37 years and has outsold General Motors' (NYSE: GM ) Silverado and Sierra combined for the past four consecutive years. The F-Series represents nearly a third of Ford's entire sales in the U.S., and analysts estimate it brings in a majority of the company's profits in the homeland. The last thing Ford wants is to deter loyal F-Series buyers because of its recent gamble to remove as much as 700 pounds by substituting aluminum for steel in the truck body. Ford's gamble will bring higher insurance and repair costs to customers, but will it deter truck buyers?
Insurance and repairs
It should first be noted that before we even get into increases for insurance and cost of repairs, Ford will have a huge task in educating consumers how the aluminum is used. I've already heard a friend, who's shopping for a truck, say that he won't consider the new F-150 because of the aluminum. I had to enlighten him that the backbone of the truck, its frame, is actually better than ever and the company increased its use of high-strength steel from 23% to 77%. The aluminum is used on the body, and that's where an increased cost of repairs will come into play.
Currently less than 10% of more than 30,000 repair shops in the U.S. are certified to work with most aluminum auto body parts, according to an estimate by Bloomberg. In addition to the costs incurred for training and certification, repair shops also need separate tools to work between the different aluminum metals. The fact is the industry doesn't have much experience working with aluminum repairs, and as the metal resists straightening attempts, repair costs are going to increase.
On the other side of the coin, while only 10% of body shops are currently fully certified to work with aluminum repairs, 80% of people live within 30 minutes of such a repair shop -- and 90% are within two hours. Ford also estimates that by the time the 2015 F-150 is hitting dealerships, owners of the new truck will have equal availability of aluminum repair shops.
Repairs aside, Ford is also gambling that its truck buyers are going to brush off the increase in costs to insure a 2015 F-Series pickup. According to Ford, it estimates insurance companies will be charging an extra 10% to insure the 2015 F-150, which it expects truck buyers to be all right with. The main reason for that confidence is that the outgoing F-150 has been historically cheaper to insure than competitors, so the increase in the new model levels the playing field in terms of insurance cost.
The decision to lighten the truck by using aluminum was a gamble on many levels, but there are a couple of reasons I believe Ford will pull it off. On the production side, the risk is high, and nobody in the automotive business has produced a vehicle with this much aluminum in such high volumes. It's expensive to use in production, and it could hurt margins on Ford's most profitable vehicle.
However, Ford CEO Alan Mulally worked with aluminum production on a massive scale while an executive at Boeing. I believe his experience at managing such production was one of the key reasons Ford was willing to take on the gamble with its 2015 F-150.
The second reason I believe Ford's gamble will pay off is the company's loyal customer base. For the fourth consecutive year, Ford earned honors for the automaker with the most-loyal customers, according to Polk Automotive Loyalty Awards. Quite simply, Ford has the most truck customers with its best-selling F-Series trucks and returns the most -- expect that to outweigh slightly higher insurance and repair costs. If that isn't enough for some truck buyers, the weight reduction of nearly 15% could boost fuel economy by as much as 20% -- official details will be coming soon. Ultimately, the gamble on Ford's F-150 is a big one, and I believe the company is poised to pull it off, rewarding truck buyers and investors alike.
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