Ford’s Niche: Smallest Engine

Ford Motor Co. (F) plans to roll out a 1.0-liter three-cylinder engine within the next two years that may replace the widely used four-cylinder engines, having an edge in fuel efficiency and lower emission. It would be the smallest engine ever produced by the automaker incorporating EcoBoost technology, which includes turbocharging and direct injection.

The engine, developed by Ford engineers in U.K., was first introduced in the Ford Start concept car, debuted at Beijing in 2010. Recently, it was unveiled in Europe in the Ford B-MAX at the 2011 Geneva Motor Show.

Ford intends to use the three-cylinder engine in its vehicles worldwide but is not very clear about the models. It will be manufactured at more than one plant, however, the company did not reveal the plants. The company will reveal more details about the engine in September at the Frankfurt Motor Show in Germany.

These apart, Ford plans to develop its own hybrid transmission at its Van Dyke transmission plant in Detroit. It will replace the one manufactured by Japanese company, Aisin. Production of the engine will begin this year and full output is scheduled to start in early 2012.

Ford also plans to develop an eight-speed transmission. The company stated that it will be manufactured in an unspecified location in the U.S.

Ford intends to meet strict federal standards regarding fuel efficiency by developing advanced powertrains and engines. According to new federal fuel economy standards, cars and trucks are required to achieve 35.5 miles per gallon on average by 2016. In 2010, however, vehicles made by the top 14 automakers averaged 22.5 miles per gallon.

On the other hand, Ford’s effort to build advanced engines would surely raise its research and development costs, which is likely to push up its vehicles prices. Recently, the company raised prices of its vehicles by an average of $124 or 0.4% per unit on the back of higher commodity costs.

This is the third time the automaker has hiked prices of its vehicles in the year after January and April. On an average, the price rise was 1.3% or $375 per vehicle this year.

Higher commodity costs have been bothering Ford for a long time. In the first quarter of 2011, the automaker’s structural costs went up $400 million and commodity costs increased by $300 million from the first quarter of 2010.

Ford expects commodity costs and structural costs to increase by $2 billion from 2010 in order to support higher volumes in the short term as well as expand and improve its lineups.

The Zacks #3 Rank (Hold) company posted a roaring 48% rise in profit to $2.61 billion in the first quarter of 2011 from $1.76 billion in the same quarter of 2010. On earnings per share basis, profits rose 35% to 62 cents per share from 46 cents per share a year ago, thereby topping the Zacks Consensus Estimate by 12 cents per share.

It was a turnaround performance with respect to the fourth quarter of 2010, when the automaker recorded a 24% fall in profit. However, the company did not deprive their stockholders from enjoying a profit for seven straight quarters after years of losses. In fact, it posted a profit during the quarter that was the best since the same quarter in 1998.

Total revenue during the quarter escalated 18% to $33.1 billion, surpassing the Zacks Consensus Estimate of $30.5 billion. The increase in revenues was attributable to a 12% rise in sales to 1.40 million vehicles. In March, the automaker topped General Motors (GM) for the second time since 1998.

During the quarter, the seasonally adjusted annual rate of sales was 13.4 million in the U.S. and 15.9 million units for the 19 markets that Ford captures in Europe. These led to a market share of 16% in the U.S. and 8.5% in Europe.

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