Ford and Toyota Reach Hybrid Agreement – Who Wins?

Straight from the “you’re not gonna believe this one” news pile, we learn today from CNN.com and PickupTrucks.com that Toyota and Ford have agreed to co-develop hybrid systems for trucks and big SUVs. From CNN:

Rivals Ford Motor and Toyota Motor announced an agreement Monday to work together to develop a new hybrid light truck. The agreement is expected to produce hybrid rear-wheel drive pickups and SUVs sometime later this decade. The agreement brings together Toyota, which has been a leader in hybrid technology, with Ford, which still has a leading position in the pickup and SUV portion of the market, where hybrids are still less common.

Over at PickupTrucks.com, Dave Thomas writes:

If there was any doubt that new fuel regulations would make an immediate and widespread impact on the automotive industry, it evaporated this morning. Today, Ford and Toyota announced an agreement to jointly develop — as equal partners — a new hybrid drivetrain specifically for light trucks and SUVs. This new technology would go on sale by the end of the decade.

Let that soak in for a moment…Ford, arguably the world’s leader in pickups, working with Toyota, arguably the world’s leader in hybrids. Why?

What’s In It For Ford

Pickups are the life blood of Ford Motor Company. If you take away the F-series, you’re looking at a much smaller company with a limited number of successful products. When you look at sales and market share, pickups are the only product that Ford does really, really well…which means Ford needs their pickups to keep on selling if they want to survive.

Yet there are stiff federal fuel economy rules taking effect in 2020 that severely threaten the future of the pickup truck. Ford needed to do something drastic to preserve their most profitable – and most important – product. Hence, they’ve offered to give Toyota access to all of their connectivity and in-car-Internet technology, along with a chance to co-develop the powertrain of the next F150/Tundra.

What’s In It For Toyota

Toyota is taking a major chance giving Ford access to their hybrid know-how, but it’s not as if Ford is in any danger of threatening the Prius brand. Ford’s hybrids have never been a serious threat. Toyota, however, has struggled to win the ‘hearts and minds’ of U.S. domestic truck owners who don’t like the idea of buying a “foreign” truck (despite the fact the Tundra has more domestic content than the F150). Toyota has long considered developing a hybrid Tundra, but when sales fell off a cliff in 2008, Tundra hybrid plans died. There was simply no way to put a pencil to developing an expensive hybrid powertrain for the low-volume Tundra.

Today, Toyota has found a partner flush with cash who is ready to spend whatever it takes to build a great hybrid pickup.

Risks For Toyota and Ford

1. Ford could erode their perceived truck advantage over Toyota. Ford and Toyota are frequently cross-shopped, which means a potential Ford buyer is very often a potential Toyota buyer (and vice versa). While Ford currently enjoys a perception advantage over Toyota when it comes to pickups, it might be hard to make that argument when F150s are using the same powertrains as Tundras. Toyota could steal some sales from Ford.
2. Toyota just gave up the only big truck advantage they had. While Toyota was definitely not a threat to the F150 in the short term, in the long run, Toyota had an ace in the hole. While Ford would have to spend billions to catch up on hybrid technology, Toyota could do a little development, reach into the parts bin, and start building hybrid trucks. Now that advantage is gone…and considering Ford’s dominance in the truck world, this could put them over the top.

Rewards for Toyota and Ford

1. Toyota just saved a ton of cash. Toyota doesn’t just have a development partner to split hybrid Tundra costs with, they’ll also have access to Ford truck technology and a partner to help defray the costs of powertrains for all their SUVs too. The Rav, Highlander, Sequoia, and Land Cruiser – not to mention the Lexus SUV line-up – are all a little less expensive to develop now because Uncle Ford is footing a big chunk of the bill.
2. Ford locked down their future. Ford’s dependence on pickup truck sales for company survival means that, without this deal in place, Ford would be heading into the next decade with a lot of uncertainty. New fuel economy rules could severely hamper truck sales, but with this deal Ford just might be able to meet fuel economy targets without compromising sales volume.

The Winners?

First, Ford wins because – in a best case scenario – they will keep on doing what they’ve been doing and sell more trucks than anyone else. Ford’s worst-case scenario is that they get into a hybrid truck pricing battle with Toyota, where significantly similar hybrid Tundras and F150s are sold against one another. Considering that Ford already builds 40% of the F150 in Mexico, they’re going to win a price war.

Second, consumers win because we get to drive hybrid trucks developed by two of the best manufacturers in the auto industry.

The Losers?

First, Toyota has lost because they just traded away a major technological advantage for some substantial short-term cost savings and some interesting technology. No doubt, Toyota will use what they learn from Ford to improve their entire line-up and generate a lot of profit. Yet when it comes to positioning the brand for the future, Toyota just gave Ford a chance to compete in an area where Toyota has been wholly dominant for more than a decade.

Second, Chrysler-Fiat loses because the just don’t have the cash to compete with GM or Ford/Toyota when it comes to developing hybrid powertrains. They’re either going to need to find a partner for their next-generation Ram (Nissan and Hyundai are both possibles), or they’re going to have to cede the truck business to Ford, GM, and Toyota in 2020. It will be interesting to see what happens next…