Efficiency and Technology

Serious people know that the price of gasoline is going to continue to rise and that when there was the 2008 fall in prices, that was predicated on the global economic slowdown, which is not exactly a positive factor for OEMs, suppliers, or anyone else who works—or worked—for a living. Here’s some of what Ford is doing. And they’re serious.

 

There are three things that Ellen Hughes-Cromwick, chief economist at Ford Motor, says have profound implications on oil supplies, something which is becoming rather more interesting of late, or so those ever-rising numbers at the gas station seem to indicate.
 
One is supply. While she points out that there are plenty of proven oil reserves, there are also serious geopolitical risks involved in relation to many of these. Sure, the oil may be there, but who is going to access it and bring it to market?
 
Another is volatility. While there had been a slow-but-steady rise in the price of oil during the early part of the ’00 decade, by mid-2008 there was a sudden rise to $147 per barrel. . .and an equally precipitous fall commensurate with the global financial meltdown. And now the ride back up is well underway.

Finally—and this is the one that doesn’t get near the attention that it deserves among the political chattering class that thinks $2.50 a gallon gas is but a pipeline away (remember: there is a world market for oil, so even though someone might stick a well down the street, that oil is going to be sold wherever)—Hughes-Cromwick points out that there are 50 emerging markets where people are getting to the point where they can more readily afford to buy things—like cars.

What does this mean? Well, she points out that in 2000, the world used about 77 million barrels of oil a day. By 2010, that rose to 87 million barrels per day. So if people in those 50 emerging markets (which includes the likes of Brazil, Russia, India, and China, the so-called BRIC countries) start buying a whole lot of cars and trucks, the upward pressure on demand is going to keep prices going ever upward.
 
So what’s an auto company to do when the future looks as though its customers are going to be facing ever-rising prices of gasoline? Develop vehicles that are more efficient in using it, as well as develop alternatives.
 
According to Dennis Kuzak, Ford’s (soon-to-be-retired) top Product Development executive, Ford has been following a plan, its “Blueprint for Sustainability,” that they formulated back in 2006. He explains that it is a “science-based plan,” one that took into account a variety of factors, including what the competitive landscape would be like, what the regulatory environment would be like, and what would be necessary to be a good planetary citizen as regards greenhouse gas emissions. This is a plan that was laid out in to near- mid- and long-term horizons. (As of 2012, it is now in the mid-term zone.) It also has specific technologies that are tied to meeting the needs. So, for example, by 2013, Ford in the U.S. will have electric power steering and six-speed transmissions right across the board. Both those technologies provide incremental improvements in terms of fuel efficiency.
 
Going forward, they’re going to be continuing the development of and the proliferation of their EcoBoost engines (there are now 1.0-, 1.6-, 2.0, and 3.5-liter variants) such that by 2013 90% of all Ford nameplates in the U.S. will be available with an EcoBoost. (Kuzak points out that while many people were skeptical of the 3.5-liter EcoBoost V6 in the F-150, they’ve sold more than 125,000 of them since 2011. In fact, the F-150 is a real success story for the implementation of the EcoBoost technology.)
 
And there is a concerted effort to roll out more electrified products, meaning hybrids, plug-in hybrids, and electric vehicles.
 
Kuzak emphasizes that the Ford plan calls for the company’s engineers to develop best-in-class vehicles. So, for example, the 2012 Focus Electric has been certified by the U.S. Environmental Protection Agency as being the most fuel-efficient five-passenger vehicle, offering a 110 miles per gallon equivalent (MPGe) rating in city driving, with a combined rating of 105 MPGe, besting the Nissan LEAF by 6MPGe. And they’re looking at the 2013 Fusion Energi plug-in hybrid to best the Chevy Volt and the Fusion Hybrid to best other midsize hybrids.
 
Kuzak says that he thinks that by 2020 electrified vehicles will account for from 10 to 25% of total sales volumes (think back to the volatility that Hughes-Cromwick mentioned: it is sort of like trying to predict the weather with any accuracy), and of that, hybrids will account for 75%.
 
The point is that going forward this industry’s shape will be one where technology will be ever-increasingly important, technology that is involved in propulsion. Kuzak says that the company’s mid-term goals include “significant weight reduction,” and he’s talking about dropping anywhere from 250 to 700 pounds per vehicle, which is not a trivial amount, but still it is what is powering the wheels that will make the biggest difference.
 
What’s interesting to note is that while there have been fluctuations in energy prices during the past few years, Ford has maintained its course, followed the blueprint for sustainability, which, arguably, has had a positive effect on its bottom line.