GM and Ford Draw Battle Lines
Competition is coming from all angles as the U.S. auto market has become the bright spot in the global picture. Europe is a disaster, and Japanese automakers have eyed the U.S. since a territorial dispute had sunk sales in China the last quarter. Even with the extra competition, and Chrysler's Ram pickup's gaining ground, it comes down to two truck juggernauts, Ford and General Motors . Here's why they'll be battling to be top dog in truck sales. Adam Jonas, an analyst at Morgan Stanley, said that Ford's F-series, the best-selling model in America for over 30 years, accounts for an estimated 90% of Ford's profit globally. For GM, the story is similar, as the Silverado and Sierra equal roughly 60% of GM's profit globally.
GM and Ford will be battling for the most profitable segment of the U.S. auto market with the 2014 Silverado and the next generation F-150. For the first time, one is taking a huge risk with its next truck. Let's look at factors which will have a critical influence on which company comes out of this battle victorious, and reveal why one company is taking a big risk.
GM changes look and message
GM's execution over the next 18 months will be absolutely critical for its future success. It's lost market share, recently accounting for only 17.9% of car and light truck sales in the U.S., its lowest mark in decades. It plans to get market share back by refreshing a huge chunk of its vehicle portfolio. This year alone, GM is releasing 13 new or redesigned models in the U.S. Three of the focal points of the 2013 North American International Auto Show are the 2014 Corvette Stingray, Cadillac ATS, which won the car of the year award, and the 2014 Chevy Silverado. Those represent a muscle car that aims to bring excitement and buzz back to a dull brand image, a luxury car focused to take advantage of rising transaction prices, and the Silverado that will battle to be the No. 1 selling truck in the most profitable segment of the U.S. auto market. A good start, no doubt, but vehicles don't sell themselves. Let's take a peek at GM's new marketing campaign.
GM's last slogan and campaign, "Chevy Runs Deep," didn't run very far, or very long. The slogan, released in fall 2010, failed to create excitement or meaning with consumers. It also didn't translate well, limiting its effectiveness globally. Now with a portfolio refresh under way, GM has decided to press the reset button on that campaign, replacing it with "Find New Roads." It's supposed to represent a change in corporate culture by finding ingenuity and challenging oneself every day. GM hopes "Find New Roads" will have the lasting success that Ford's "Drive One" accomplished.
Battle line: F-150 vs. Silverado
Truck profits are what keeps the lights on in Detroit, and the 2014 Silverado will play a huge role in determining whether GM's portfolio turnaround is a success or not. Production is slated to begin in the second quarter of 2013 and be in showrooms by mid-2013, giving it at least a year head start against the next generation F-150.
As CAFE standards rise and consumers prefer better fuel efficiency, these two will be battling for market share with different strategies. The new Silverado merely takes the next step with cylinder deactivation, which essentially shuts off extra cylinders when full power isn't required, thereby saving fuel consumption. There is nothing revolutionary there, merely the next logical step. Ford's take on luring fuel-efficient-minded consumers will take a riskier approach with its next-generation F-150. By using aluminum in place of some steel, 700 pounds will be removed from the F-150, roughly 15% of its typical weight. That reduction alone is supposed to make the truck meet CAFE standards through 2020, a 25% improvement from today's model. Combine that factor with the EcoBoost engine that uses a turbocharged V6 engine, to keep all the power of a V8 but offer improved fuel efficiency, and you have a compelling story for the next generation of F-150s.
That doesn't mean this will be a walk it the park; this isn't a mere next step in fuel efficiency, it's a leap ahead. Aluminum has its advantages, obviously it weighs less and, unlike steel, it's more corrosion and rust resistant. One huge risk for Ford is controlling costs. Aluminum requires much more energy to work with, typically making it more expensive than steel. By making such a drastic change, replacing that much steel with aluminum, it's putting its healthy margins and profits on the line. When truck profits represent 90% of the company's profit, it becomes a major gamble.
Another risk for Ford, is convincing consumers that an aluminum truck is as "Ford Tough" as its steel predecessor, no easy task. One way Ford is battling that is by making the truck appear more muscular and durable.
Roughly 59% of truck owners tow and 67% haul, meaning Ford has to prove switching to aluminum has no decreased capacity to effectively tow payloads. The new look will help, but research facts will need to be incorporated in a marketing effort to make this next-generation truck a success.
This is a go big or go home move, one that could reward investors who believe Ford will pull it off. In 2007 the Silverado and F-150 were neck and neck, with Ford holding 16.5% market share versus Chevy at 16.1%. Three months ago the F-150's share surged to 22.8% while the Silverado remained flat, slipping to 16%. Ford CEO Alan Mulally said this "The F-series is the heart and soul of America." If Ford's risk of taking a leap ahead in fuel efficiency using aluminum pays off, then investors will be very well-rewarded by Ford's leap in market share. The battle line has been drawn: Time to pick a side and see who claims dominance in the U.S. market.
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The article GM and Ford Draw Battle Lines originally appeared on Fool.com.Fool contributor Daniel Miller owns shares of Ford. Follow him on Twitter @StreetSmartFool. 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.
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