Ford Is Well Positioned For Obama’s Higher Fuel Efficiency Standards

by Trefis Team
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The Obama administration has announced new Corporate Average Fuel Economy (CAFE) standards for cars and light trucks with the aim to achieve 54.5 mpg equivalent of mileage by 2025, almost twice that of 27.6 mpg passed in 2011. For most automakers, the new fuel efficiency standards mean higher input costs as they spend a significant amount in implementing new technologies and using raw materials likely to improve fuel efficiency of their vehicles.

Trefis estimates Ford Motors (NYSE:F) has done a good job in staying ahead of the curve as the automaker is already spending a great deal on research & development to innovate new models and improve the existing ones, and making them lighter and more fuel efficient. This should really help the company in the long run. The automaker is already doing well in the North American market as it posted an operating profit of $2 billion in the second quarter of 2012 in this region.

Ford is Ready

A major reason why American giants General Motors (NYSE:GM) and Ford have lost market share to their Japanese counterparts in recent years is because the high (and volatile) gas prices have forced the American consumers to switch to more fuel efficient cars. And part of Ford’s plan for resurgence is to focus more on building smaller and more fuel efficient vehicles.

Ford is planning to use aluminum in its new F series in order to reduce the total weight of the vehicles by 15%, which would help increase mileage by as much as 10%. The new F series is expected to be launched in 2014. Even the 2013 C-Max Hybrid has clocked 47 mpg, inching closer to Toyota Prius hybrid’s 51 mpg. [1] In fact, by the end of the year, Ford will have eight cars in its portfolio with mileage in excess of 40 mpg. All in all, Ford is planning to invest $16 billion in its U.S. operations, including $6.2 billion in U.S. plants, to design, engineer and produce new and upgraded vehicles and components by 2015.

We have a $12 price estimate for Ford, which is about 30% higher than the current market price.

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Notes:
  1. Ford C-Max hybrid nudges Toyota Prius on gas mileage, August 23, 2012, usatoday.com []
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