Ford, GM and the 'Efficient' Road Ahead

NEW YORK--January 14, 2013:

With an aging fleet across the country, consumers are beginning to do the math. Savings at the pump could quickly outweigh new vehicle costs, especially as potential buyers begin to factor maintenance and new advances in fuel saving technology.

A shift in long-term strategy is ahead as Ford Motor Company [ Full Research Report ]⁽¹⁾ and General Motors Company [ Free Research Report ]⁽²⁾ are beginning to realize the importance of fuel economy and operational efficiency. GM powertrain spokesman Dan Flores confirmed that General Motors and Ford are signing an MOU (memorandum of understanding) to "develop a variety of all-new fuel-efficient transmissions." The companies are still in discussions, and an official press release is expected soon.

Fuel economy isn't the only benefit of a joint venture; "It would (also) have huge manufacturing cost and volume advantages over all the competition," said Skip Nydam of ND-Automotive, an industry analyst firm. The combined size of Ford and GM's supply base would enable deep economies of scale and eliminate significant traditional overlap, allowing the pair to feasibly pursue fuel-efficient technologies with reasonable expenditure. "The biggest benefit in G.M. and Ford working together is it reduces their investment risk," said David Petrovski, a powertrain analyst at IHS Automotive.

New powertrains are the tip of the iceberg. GM recently contributed $5 million to the new National Tire Research Center in Halifax, Virginia, which uses cutting-edge tire performance machinery to recreate real-world driving events. Tire design can help improve fuel efficiency by up to 7 percent and that's exactly what GM is hoping to accomplish with its recent investment in the center.

Ford recently struck gold by offering a turbocharged V6 that gets V8-like power and far better fuel economy. Half of F-150 sales are now EcoBoost engines - Ford's name for the process of using turbocharging and direct-injection on smaller engines to get more power and better fuel economy. In 2014, Ford aims to come out with a new truck that has a largely aluminum body and is 700 pounds lighter. It promises to raise the bar on fuel economy again.

Translating Fuel Economy into Sales

Since 2008, the average age autos on the road has consistently risen and recently set a record high. The average car on the road today is over 11 years old. This presents a significant opportunity for car manufacturers to close the gap between cost-of-new vehicles and cost-savings of a new vehicle. Ford and GM are effectively trying to bring fuel efficiency into the forefront of the car-buying equation. Consumers are starting to do the math and realize their additional savings at the pump from a newer, more fuel efficient vehicle may very well offset the cost of new vehicle financing or leasing.

It is this large and pent-up market, potentially accounting for all sales declines since 2008, that could quickly fuel an entirely new wave of car sales. If car manufacturers can tip the scales in favor of buying-new instead of maintaining-old, the industry may be in for an efficient road ahead.

Reference Links:

⁽¹⁾ The Full Research Report on Ford Motor Company - including full detailed breakdown, analyst ratings and price targets - is available to download free of charge at: [ Ford Report ]

^{(2) The Free Research Report on General Motors Company - including full detailed breakdown, analyst ratings and price targets - is available to download free of charge at: [ GM Report ]}