Ford’s Transition To All-New 2015 F-Series Could Trim Production, Profits0
Even though Ford Motor Company hasn’t officially confirmed that it will launch the all-new F-Series pickup truck line next year, it did say that it will have more information about its plans for 2014 “over the next couple of months”. But those closely following The Blue Oval’s activities are well aware that the automaker it planning on launching an all-new F-150 model in 2014 as a 2015 model.
Yet while enthusiasts eagerly await the all-new F-150, analysts are more tepid, having expressed concerns about a drop in Ford’s production volume as well as in associated profits during the transition from the current 12th-generation F-150 to the all-new 13th-generation 2015 F-150 in mid-2014. A Barclays report published in late October, for instance, cites an estimate from research firm IHS automotive that forecasts an 8.5 percent drop in full-size pickup truck output at The Blue Oval in 2014 — a sizable decrease for Ford North America, the automaker’s most profitable and volume-driven geographic business unit.
The Importance Of Success
But don’t tell Ford that, as the automaker has its sights set on continuing to profitably grow its market share with the industry’s leading lineup of vehicles.
“Sustaining our profitability, our market share growth, keeping our lineup the freshest in the industry, those are all important goals,” Joe Hinrichs, Ford president of the Americas, said in an interview last month. “We want to continue to sustain the performance we’ve been having in North America.”
The success of the F-150 is crucial for Ford, as not only is it a highly-profitable product — generating $8,000 to $10,000 per unit in gross margin according to estimates from Morgan Stanley, but it is also a high-volume seller, being the best-selling truck and vehicle in the United States for over three decades. The 12th-generation F-150 continues to sell in record numbers, even as the model reaches the end of its lifecycle and General Motors’ Chevrolet and GMC brands as well as Chrysler’s RAM release updates to competing trucks of their own. Notably, the sales growth of the F-Series has outpaced the competition, as Ford has already sold more F-Series trucks through November 19th, 2013 than in all of 2012.
The Six-Month Overlap
In an effort to prevent common glitches associated with launching a new model from crippling sales of the F-150, Ford will reportedly produce both the outgoing F-150 and the next-generation model for a six month period in 2014. The Blue Oval builds the U.S.-market F-150 in its assembly plants in Kansas City, Missouri and Dearborn, Michigan, while international markets are served by facilities in Cuautitlan, Mexico and Valencia, Venezuela.
Ford’s U.S. facilities are expected to begin preparing their assembly lines to build the all-new F-150 in March of 2014.
Maintaining The Profit
According to Barclays’ Brian Johnson, Ford’s pretax profit in North America — its most profitable region — could decline to $8.6 billion with a margin of 9.8 percent in 2014, from $9 billion and 10.1 percent in 2013. He gives Ford shares a “hold” rating and estimates that they may rise to $20 per share in the next year, from the $16.87 price at time of publication.
“North America may need to take a step back in 2014 as the company transitions its large pickup truck product,” Johnson said in the report. “We suspect that the impact of Ford’s large pickup transition is underestimated.”
In the first three quarters of 2013, Ford earned $7.08 billion in North America, a significant increase from $6.47 billion during the same time period in 2013. Given the better-than-usual 2013 results, Ford has predicted that its annual profit will be higher than last year’s record of $8.34 billion, with a margin of roughly 10 percent.
The Motrolix Take
Given Ford’s reported plan to overlap production of the outgoing F-150 and the all-new model over a period of six months, it’s possible that The Blue Oval has already realized and solved the production volume-related troubles being noted by the analysts. While we won’t know whether this is true until the mid-2014 launch of the 2015 F-150, one thing is certain: Ford will go to great lengths to maintain its production and sales volumes, as well as profits. And if the past is any indication of the future, the professionals at The Blue Oval will do what it takes to ensure the continued success of their most profitable product well into the future.