Ford doubling down on aluminum trucks – Detroit Free Press

Posted: Monday, October 06, 2014

The stakes of Ford’s gamble on aluminum rose sharply last week.

On Monday, CEO Mark Fields and team told investors the company will not make money in Europe until 2016, because of Russia’s deteriorating economy, and fall as much as $2 billion short of earlier forecasts on its third-quarter earnings. But they also said Ford will use aluminum on the next generation of the hard-working Super Duty pickups.

Ford shares fell from $16.33 to $14.59 in the last week, largely in response to the warning about last quarter’s profit.

While Ford and General Motors trumpet their growth in China, neither would be profitable without the resurgent U.S. market, and more specifically, Americans’ insatiable appetite for pickups.

Wall Street is concerned that profit margins on the new F-150 will be slimmer than on its steel-body predecessor.

Aluminum prices have averaged about $2,200 per ton over the last five years, according to Bloomberg Industries. By contrast, steel ranges between about $300 per ton for sheet metal and $500 for shredded auto scrap.

“Those on the outside would say it’s a big risk. We don’t say it’s a big risk. We did all our homework and it was a calculated decision,” said Matt O’Leary, vehicle line director for North America trucks, SUVs and commercial vehicles. “We’re using less and it is more recyclable and we can re-invest that; something we’ve never done.”

But the new technologies and the addition of ever-more sophisticated features in the F-Series and other models pose a greater risk of recalls and higher warranty costs. Fields told investors Monday that a recent air bag-related recall will cost $500 million alone and warranty costs will hit $1 billion this year.

If Ford bolsters its truck leadership, then investors may look beyond last week’s bearish news.

Switching the Super-Duty pickup to aluminum will add an estimated 350,000 heavy-duty trucks to 750,000 F-150 light-duty pickups annually. That presents economies of scale that help offset aluminum’s higher cost.

While a separate engineering team is developing the Super Duty, that group will benefit from Ford’s in-house knowledge and lessons learned.

Chief Financial Officer Bob Shanks said expanding the aluminum technology provides “lots of opportunities in terms of leveraging scale …Already we’re starting to see the opportunities.”

But the launch of the new truck will be closely watched.

“Was it just us, or did Ford introduce hints of reasonable uncertainty around the 2015 F-150 truck launch?” asked Morgan Stanley analyst Adam Jonas in a report last week, referring to management’s emphasis on the scope of the changes and production disruptions that continue into next year.

Specifically, Ford told analysts it won’t know the profit margins on the new trucks until the second half of 2015. Jonas told his clients that General Motors and Chrysler likely will try to take advantage of Ford’s transition either through incentives or other marketing initiatives on their own trucks.

Ford’s Dearborn truck plant is ramping up. Its sister factory in Kansas City will shut down for changeover at the end of the year with no production for first six weeks of 2015.

Ford leadership remains confident that much better fuel economy from the 700-pound reduction from steel to aluminum will achieve the opposite effect, luring GM and Ram truck owners to the Blue Oval.

“Light-weighting offers a once in a lifetime chance to conquest,” said Jim Farley, head of Ford global sales and marketing.

Fields is convinced the truck is a winner.

“We think it’s a calculated risk and the right risk for our company and our customers to continue to be a leader in the segment,” said Fields. The Super Duty announcement reinforces that commitment.

Heavy-duty truck buyers are used to towing aluminum trailers, seeing it in toolboxes, dump truck bodies, wheels on big rigs, said Doug Scott, Ford group marketing manager for trucks. “They already know aluminum is durable.”

Ford research found 80% of F-150 buyers accepted the idea of an aluminum pickup while 20% were skeptical. More than 90% of Super Duty customers were accepting.

John Marrinan is a rancher in Camas Prairie, Mont., where he has 30,000 acres, 500-600 cows and six F-350 Super Duty trucks with diesel engines.

He won a contest to test a 2015 F-150 for a week in July, using the smaller truck for all his chores. He moved cows and about 400 bales of hay weighing about 600,000 pounds.

“I was impressed with the power and fuel economy. I hauled all day and burned a quarter tank of gas,” he said. “When I’m bouncing across the fields I usually hear rattles. This truck was solid. But I could also take it to town. The family used it and my wife drove it.

“I’m a Super Duty guy,” Marrinan said. But he will seriously consider an F-150 when he needs a new truck because it offers comparable power while doubling as the vehicle his wife liked just as much.

Contact Alisa Priddle: 313-222-5394 or apriddle@freepress.com. Follow her on Twitter @AlisaPriddle

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