General Motors (NYSE:GM) had a pretty good year in 2014. A lot of that had to do with GM's success at selling pickups in North America, still its most important and most profitable market.
GM's trucks gained quite a bit of ground on old rival Ford (NYSE:F) last year. But now, Ford has a new weapon in the truck wars: An all-new F-150 with an aluminum body.
Will Ford be able to win back its lost market share from General Motors?
Strong GM profits driven by strong truck and SUV sales
GM earned $6.6 billion in North America last year even after taking its costly recalls into account. GM's big SUVs -- the Chevy Tahoe and Suburban, and their upscale GMC and Cadillac siblings -- had a lot to do with that, as they were all-new for 2015 and have been selling very well.
But GM's pickups also made huge contributions to GM's bottom line last year. Sales of the Chevy Silverado were up 10.9% last year, while sales of its upscale (and more profitable) twin, the GMC Sierra, rose almost 15%.
You don't have to look too far to see where those gains came from: Sales of Ford's F-Series, which includes the F-150 and its Super Duty siblings, fell 1.3% last year -- and Ford's profits took a big hit as a result.
It's very unusual to see Ford, the longtime pickup-truck sales leader, lose ground in a strong market. But there's a good explanation for what happened last year. Ford's pickup factories had to shut down for extended periods to retool for the radical all-new 2015 F-150.
Ford was at a disadvantage for good reasons in 2014, but not for much longer
Ford makes the F-150 in two different factories, one in Dearborn and one near Kansas City. Normally, retooling a car or truck factory to make an all-new model is a straightforward process. But the new F-150 required much more effort because of the new truck's aluminum body panels.
Building a vehicle with aluminum body panels requires different tooling and techniques than building one made of steel. Unlike steel, which can be welded, Ford's technique for aluminum requires that it first be "bonded" with high-tech glue and then riveted into place.
That technique has worked well in the past at companies like Jaguar (which Ford once owned), but Jaguar's production volumes are nothing like a Ford truck plant's. No company had ever tried to use the technique to build vehicles at the rate Ford builds pickups: 60 trucks an hour on three shifts -- almost around the clock.
That meant Ford's production experts needed to do a lot of work to get the tooling and assembly lines right -- and a lot of testing to make sure those lines could produce high-quality trucks at the rate Ford needed. That meant a lot of factory downtime -- and a lot of lost production: Ford North America chief Joe Hinrichs estimated that Ford would lose 90,000 units of production before both factories were back up to full speed.
How GM was able to take advantage
Ford's Dearborn plant is already up and running. It began producing the new F-150 in November, and most Ford dealers have by now received (and sold several). But Kansas City is still closed, and will be for several more weeks.
In the meantime, Ford dealers are selling a mix of new 2015 and old 2014 models. Before closing its plants, Ford stockpiled 2014 models in order to keep its dealers well-supplied -- and cut its incentives a bit in an effort to help them manage supply and demand (and profits).
That's what allowed GM and its fresh new trucks to steal sales from Ford last year. But will it be able to hold on to those gains once Ford's factories are back up to speed?
The multibillion-dollar question: Who has the upper hand now?
That's the multibillion-dollar question for shareholders of both Ford and GM. On paper, Ford's new truck is a strong entry, with improved fuel economy and towing capacity and lots of available new high-tech features. Early examples have been selling very quickly and at very strong prices, suggesting there's a lot of pent-up demand for the model.
But will that demand hold up? GM CFO Chuck Stevens said last week that while he thinks GM's pickup profits might "moderate," there's still an opportunity for GM to post sales gains thanks to the drop in gasoline prices. He also hinted that GM might be able to make gains in "mix," the ratio of highly optioned (and highly profitable) trucks to less-profitable base models that GM sells.
Both the Silverado and the new F-150 are strong entries. Each has a few "best-in-class" bragging rights -- while the lighter F-150 can claim the best fuel economy with a gas engine, the Silverado has a surprisingly efficient small V8 option for those who prefer eight-cylinder trucks.
I think it'll play out like this: Ford will post strong year-over-year gains in pickup sales as we get further into the year, once Kansas City is up to speed and Ford dealers have full supplies of the new trucks. But I also think GM's trucks will continue to do pretty well and post good profits, as GM continues to be careful with incentives and get better at offering compelling premium-level trims and options.
What do you think? Will the new F-150 crush GM's 2014 sales gains? Or is there room in the market for both trucks to do well for their makers? Scroll down to leave a comment with your thoughts.
John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.