At Ford Motor Co.’s Rouge factory, where Henry Ford began building Model A cars almost 90 years ago, the automaker today officially began manufacturing an advanced, aluminum-bodied F-150 pickup, its top selling and most profitable model.
Much like Henry Ford’s changeover from the Model T to the Model A in 1928, the birth of the 2015 F-150 has been painful, costing the company sales and profits this year as it closed the Rouge and a plant near Kansas City, Missouri, to install new tools and machinery to prepare for the largest production ever of an aluminum-bodied vehicle.
“We recognize this is the most watched launch in the industry,” Raj Nair, Ford product-development chief, told reporters in Dearborn, Michigan, yesterday, adding that the introduction is on schedule. “We know the importance of getting the F-150 right.”
Not everyone believes Ford can pull it off smoothly.
Morgan Stanley analyst Adam Jonas called the new truck “one of the most audacious engineering projects in Ford’s history” in a June report entitled “We expect a challenging truck changeover.”
Ford’s third-quarter profit fell 34 percent to $835 million as it lost about 90,000 units of F-150 production this year while the two truck plants closed for 13 weeks.
Today, Ford Executive Chairman Bill Ford, great-grandson of the founder, helped roll out the first 2015 F-150 with the automaker’s new chief executive officer, Mark Fields. When he was CEO 13 years ago, Bill Ford pushed through a $2 billion overhaul of his family’s famous factory in a bid to make it environmentally friendly, including outfitting it with a 10-acre (4 hectare) “living roof” blanketed in sedum, a succulent ground cover.
“The all-new F-150 continues to advance my great- grandfather’s vision of building vehicles we can be proud of and our customers can depend on,” he said in a statement.
Ford has a lot riding on the new F-150. The $8,000 to $10,000 in gross profit each truck hauls in accounts for 90 percent of Ford’s global automotive earnings, Jonas has estimated. He said the new F-150 can’t command a high enough price to cover the cost of aluminum, which can be almost three times pricier than steel.
Higher Prices, Lower Margins
“We expect margins on the new truck to be lower than the outgoing truck due to a combination of upfront costs and competitive reaction from” General Motors Co.’s Chevrolet Silverado and GMC Sierra and Fiat Chrysler Automobiles NV’s Ram, Jonas wrote in a September note downgrading Ford to underweight.
Ford raised prices on the new truck by 1.5 percent, or $395, on the base model XL, which starts at $26,615, to 7.9 percent, or $3,615, on the high-end King Ranch version that starts at $49,460. Ford said more than 250,000 online shoppers had configured and priced a truck on its F-150 website, a record.
The truck sheds as much as 700 pounds (318 kilograms) to improve fuel economy, mostly by using aluminum instead of steel in its body. Efficiency is the most important feature to pickup buyers, Fields said on Bloomberg Television.
Ford has said it expects the F-150’s fuel economy to improve by as much as 20 percent. Official mileage ratings are expected from the U.S. Environmental Protection Agency by the end of the month, Ford said.
Fuel Economy Matters
“People ask me whether fuel economy is still important to the customer with gas at $3 a gallon,” Bill Ford told reporters at the Rouge today. “The answer is a resounding, ‘yes.’
Building an aluminum vehicle on this scale comes with challenges, he said. Yet the improvements in fuel economy and driving dynamics make it worth it, he added.
“Yeah, there is a risk,” Ford said. “But it’s one well worth taking.”
In 2013, Ford’s F-Series was the top-selling vehicle line in the U.S. for the 32nd consecutive year, with sales rising 18 percent to 763,402. That helped drive Ford’s North American pretax profit to a record $8.78 billion last year.
Ford told investors on Sept. 29 that pretax profits this year will fall to $6 billion, short of its goal of $7 billion to $8 billion.
The automaker will lose more production next year as it takes six weeks to convert its F-150 factory near Kansas City. When running, the Rouge and the Kansas City Assembly Plant will have the capacity to produce more than 700,000 trucks annually. In September, the company announced it would add 1,200 jobs at its plant near Kansas City.
At the Rouge, Ford added 850 workers to the more than 4,000 employees it already had there. It also is deploying 500 new robots to help seal together aluminum body panels on the truck.
“We’re sweating the details now as we go into manufacturing,” Bennie Fowler, Ford’s global quality chief, told reporters yesterday. “That’s the biggest challenge we’re working on.”
Ford shares added 2.6 percent to $14.37 at the close in New York, leaving them down 6.9 percent for the year so far.