Ford (NYSE:F) announced on Tuesday that it has begun production of the all-new 2015 F-150 pickup at its historic Rouge manufacturing complex in Dearborn, Michigan.
The new F-150 doesn't look especially radical -- it looks like what it is, an F-150. But its industry-first aluminum body panels and long list of high-tech features could make the new F-150 a big step forward for both Ford and the industry.
And it's a good thing that production has started, because Ford's pickup sales have been taking a beating lately.
These new trucks will have to make up lost ground
General Motors (NYSE:GM) said last week that sales of its two full-size pickups, the Chevy Silverado and GMC Sierra, were up almost 11% last month, to 65,530. And Fiat Chrysler (NYSE:FCAU) reported that sales of its Ram pickups rose a whopping 33% in October. Both were able to boost sales while reducing their spending on incentives -- a great situation for profits at both automakers.
How did they manage that? Here's a clue: Sales of Ford's F-Series, which includes the 2014-model F-150 and its Super Duty siblings, fell 0.6% last month.
What's going on is that Ford has been refitting its two truck factories to make the all-new 2015 F-150. Tuesday's news that the Dearborn Truck Plant has started making the new trucks represents a significant milestone for Ford, but there's more disruption to come: Its Kansas City plant, which is still making the 2014 F-150, will be closed for several weeks early next year for its own changeover.
New-model changeovers always cause some disruption, but this one is much more complicated than most, because Ford's all-new F-150 has body panels made of a high-strength aluminum alloy.
Why the new F-150 will cost Ford 90,000 sales
Ford shifted its new trucks to a special "military-grade" aluminum alloy because the metal is much lighter than the steel panels used on the current F-150. The new trucks will be hundreds of pounds lighter than the trucks they replace.
All things being equal, a lighter truck has more towing capacity and gets better fuel economy, advantages that Ford is hoping will preserve its longtime lead in pickups -- and help it meet tightening fuel-economy regulations. (Ford said on Tuesday that it will announce the new truck's EPA-estimated fuel-economy ratings later this month.)
But building an aluminum-bodied vehicle is different from building a steel-bodied one. Aluminum panels are "bonded" with high-tech glues and then riveted into place.
The process requires very different tooling and techniques, and Ford's pickup plants are being gutted and retooled to make the new trucks. That's a long, involved process: Ford's Dearborn plant was closed for a total of 12 weeks to retool, and its Kansas City plant will lose a similar amount of production early next year.
Ford North America chief Joe Hinrichs estimates that the company will lose 90,000 units of production as a result of the factory downtime needed for the changeovers. That means that Ford has to carefully manage its inventory to ensure that its dealers don't run out of 2014-model trucks before they have a full supply of the new 2015s.
How has Ford managed its inventory? By keeping its incentives lower than they might otherwise have been. The price discipline means that the company has given up some sales to rivals, but it's ensuring that it has enough trucks to get its dealers through the changeover -- and generating good profits on the trucks that it does sell.
A complicated changeover appears to be on track
But Ford's profits did fall substantially last quarter, a drop the company blamed in part on the costs of ramping up for the new F-150 -- including the cost of those lost sales.
And while the company continues to lead the U.S. pickup market through the first 10 months of 2014, it has lost some market share. Both GM and FCA have gained ground this year, and the combined sales of GM's two full-size trucks were enough to beat the F-Series by 2,120 units last month.
Ford expects both its profits and its market share to recover once production and sales of the all-new F-150 are fully ramped up -- but it has warned that that might not happen until the second quarter of 2015, after the Kansas City plant is fully converted to production of the new F-150.
Meanwhile, for Ford shareholders, the good news is that this very complex changeover appears to be on schedule -- and soon, we'll find out what customers think of the radical new truck.