In an environment of intense global competition among auto manufacturers, it's time to push the limits -- and Ford (NYSE:F) is leading the way. The new 2015 F-150 that Ford unveiled today shows just how far the company is willing to go to set new standards.
Ford's aluminum bet
"We will all remember this day," Ford chief operating officer Mark Fields told his colleagues the day Ford locked in aluminum contracts, according to The Wall Street Journal.
Taking cues from Tesla's Model S, the Jaguar lineup, and the Audi A8, Ford moved to an aluminum-alloy body built on an all-new, high-strength-steel frame. Up to 700 pounds less weight, the new material required significant investment for the company to adopt the military-grade, aluminum alloy in production.
Any significant change to the production process of the Ford F-150 is a major change for the company. The F-150, which is part of Ford's F-Series truck lineup, has been America's best-selling truck for 37 consecutive years, and its best-selling vehicle for 32 years. Even more, the F-series trucks account for an estimated 40% of Ford's global profit, according to estimates from Goldman Sachs.
With F-150 pricing beginning at just $24,000, a move to a more expensive metal for the body is impressive. The Model S, with pricing that begins just under $70,000, is the lowest-priced aluminum vehicle in the U.S., according to the WSJ. An inside source told the Journal that the move to aluminum meant a massive multibillion-dollar investment. Unsurprisingly, Ford lowered its profit guidance for 2014 in December and cited heavy investments on product spending as one of the driving factors.
Changing industry dynamics
Ford's big bet on an aluminum body comes as a response to a U.S. government directive for an average of 54.5 miles per gallon among all automakers' full ranges of U.S. vehicles by 2025. The lighter body allows the new F-150 to sport a smaller 2.7-liter V-6 EcoBoost engine as one of the four engine options for customers. The new engine combined with the lighter body will help the company achieve fuel efficiency leadership among full-sized pickups, Ford global chief of product development Raj Nair hopes.
General Motors is taking a different route to improving fuel efficiency in 2014, returning to midsize pickup truck offerings for its 2015 models. The move will place the new 2015 GMC Canyon as direct competition to Toyota's popular Tacoma.
Beyond the government's requirement for improved fuel efficiency, customers are also showing greater interest. Ford says about 40% of F-150 buyers are now choosing the more efficient V6 engine over the traditional V8.
Ford's multibillion-dollar bet on new production technologies and processes shows just how important fuel efficiency is to Ford today. Further, it's likely the beginning of similar big bets among global auto manufacturers. While there are major upfront costs to changes like this, investors should look forward to what is likely to be an era of bigger bets and a faster pace of innovation that will separate the winners from the losers.
There's no time for auto manufacturers to languish in technologies of the past, and Ford's big bet shows that it's willing to get its hands dirty in order to continue to set the standard among full-sized trucks.