Ford takes big gamble with new aluminum F-150
In 2009, with the global economy still reeling from the financial crisis, Ford executives made a bold move when caution might have been expected.
For more than three decades, the automaker’s F-150 had been the bestselling vehicle in America. As Ford looked to redesign the truck, it could have made modest improvements to keep that lead. Instead, Ford looked for a way to extend it — building the industry’s first high-volume vehicle with all-aluminum body panels, a huge risk Ford hopes will result in even bigger rewards.
As the first F-150s roll into dealerships starting in December, the industry is watching to see how Ford’s gamble pays off.
Ford is touting revolutionary improvements in efficiency, performance, towing and hauling. But no company has attempted, much less executed, manufacturing an aluminum vehicle on such a grand scale. Ford still hasn’t proved it can do it, even with an investment of at least $1.4 billion into two factories that will crank out the lightweight trucks.
Any delays in production could prove a boon for rivals GM and Ram, which are already slashing prices on their trucks to attract disenfranchised Ford owners and newcomers to the segment. Moreover, the aluminum F-150 faces unknown insurance costs and repair costs, as Ford must quickly train legions of collision centers in how to repair aluminum body panels.
“When you combine the enormous upfront cost to install new machinery with the added risk of a higher-cost material on your highest-volume vehicle, it’s a risky proposition,” said Andrew Lane, an analyst specializing in aluminum and steel at Morningstar Inc. “This is a milestone for the auto industry.”
Not only is aluminum significantly more expensive than steel per ton, it’s more difficult to manufacture at high quality, especially at the speed and scale Ford is about to attempt.
Instead of being welded like steel, aluminum is riveted and bonded with adhesives. Doing this at a rate of 14,000 vehicles a week — the pace Ford will need to hit once both its truck plants are fully operational — has never been tried before.
To date, only such brands as Audi, Jaguar and Land Rover have used aluminum as the primary metal in their vehicles. But these are high-dollar luxury vehicles that sell at only a fraction of the numbers that Ford’s F-150 counts on each year.
Ford sold 510,000 F-150 trucks in 2013, according to registration data from IHS Automotive. The new 2015 model will start at $26,615. By comparison, the aluminum Range Rover — which starts at $84,225 — averages about 12,000 sales a year.
“This is way too big to fail,” said Dave Sullivan, an analyst at AutoPacific. “Obviously, Ford feels aluminum is the way to go. We just don’t know if the quality will stay where it needs to.”
Ford is advertising that the trucks will begin selling by the end of the year, but the automaker acknowledges that it will be “mid-2015" before its factories can reach full capacity. That assumes no delays in implementing new manufacturing processes.
Morgan Stanley isn’t optimistic that that will happen. In a report released Oct. 8, the firm said it had little doubt that this new F-150 would ultimately prove a revolutionary product.
But in the near term, Morgan Stanley expects the “changeover is unlikely to go as smooth” as investors anticipate. The firm downgraded the price target for Ford’s stock from $16 a share to $14.
The firm’s analysts pointed out that Ford’s recent Escape crossover — a far less complicated vehicle to build than the F-150 — has been recalled 12 times in a year. Because the F-150 makes up an estimated 90% of Ford’s global profits, any production delays could seriously hurt the automaker’s bottom line.
“This is not just a matter of running sheets of aluminum alloy through the same old equipment and out pops a new truck,” the report said. “Far from it.”
Ford stopped production of the outgoing, steel-bodied F-150 at its Dearborn, Mich., plant in August and expects updates to the plant to be done in the next few weeks. Once that plant is up and running, it will halt production in Kansas City, Mo. — where Ford will also build a new Transit commercial van — to begin that plant’s conversion.
Temporarily pulling the plug on any F-150 production will thin out dealer inventories and leave Ford more vulnerable to sales pressure from GM and Chrysler’s Ram division.
Both of these competitors have ramped up marketing and discounts to attract customers who can’t find the Ford model they want.
GM boosted the September incentives on its full-size trucks by 25% over their 12-month average, according to forecasts by Edmunds.com. Ram’s were essentially flat but still came in 15% higher than Ford’s.
“This is a golden opportunity for the Chevy Silverado, Ram 1500 and GMC Sierra,” said Jeremy Acevedo, senior analyst for Edmunds. “Even though truck buyers are astoundingly loyal, there’s still the opportunists out there who see a deal and need a truck.”
This could have long-term implications for Ford if buyers defect to a competitor and then stay put in the future, Acevedo said.
Ford, for its part, isn’t worried.
“The F-150 is selling according to plan,” said company spokesman Mike Levine.
He pointed out that sales of the F-150 are down just 1% for the year, despite it being an outgoing model.
The other major challenge comes after buyers start driving — and wrecking — the new F-150. Only a body shop or dealership that has specifically upgraded its facilities to repair and paint aluminum will be able to fix the trucks.
AutoNation, which has 43 Ford dealerships around the U.S., said it expects to spend about $40,000 to $50,000 per facility on the upgrades. That’s in line with what Ford has told the roughly 1,100 dealerships with body shops across the country to expect. To ease that burden on dealers, Ford is subsidizing up to $10,000 per shop and paying for one technician to be trained.
With only a third of Ford dealerships running their own body shops, many new F-150 owners will need to find an independent shop for repairs. That may not be easy; just under 15% of technicians around the country have been trained on how to fix the F-150’s aluminum body, according to I-CAR, the nonprofit training organization in charge of the process.
Car insurers such as Allstate and State Farm say they’re taking a “wait and see” approach before they decide on whether they’ll need to raise insurance premiums on the aluminum F-150. If fewer shops can repair and paint them around the country, this could push monthly premiums up.
Ford argues the way the new model is designed allows for easier repairs to certain sections, drastically cutting down on labor and materials costs.
Despite the heavy risks Ford faces in this switch, analysts agree that Ford is best positioned to shake up the full-size truck market. The automaker last sent waves through the industry in 2011 by introducing a turbocharged EcoBoost V-6 that had the power and towing capability of a V-8, but with noticeably better fuel economy.
Although many expected truck buyers to cling to their V-8 engines with a vise-like grip — especially given that the EcoBoost engine cost more — Ford proved naysayers wrong. That turbocharged V-6 now makes up nearly 50% of all F-150 sales.
The engine’s popularity led Ford to introduce a second, smaller turbocharged V-6 on the new 2015 model. It’s an engine that wouldn’t have been possible without the lightweight aluminum body.