Since the time Jim Farley was named the CFO and heir apparent to the top spot at Ford Motor in February, Jim Farley has touted the potential development of its commercial vehicles.
But it’s not just more trucks and vans that Farley aims to sell to the consumers. As Farley prepares to take over as CEO on October 1, he is betting the automaker can transform its commercial vehicle business to generate recurring earnings through sales of services that take benefit of the software, data, and connectivity in its F-Series pickup truck and Transit vans.
“Think of it as a second F-150,” Farley told Reuters, referring to the U.S. automaker’s lucrative full-size truck business that generates $50 billion in annual revenue. “We have the F-150 everyone loves. There’s this other business out here that’s huge.”
“Think of the data being more powerful than the fuel economy of the vehicle,” he said.
Ford is among the automakers who have talked for a long time about generating post-sale revenue from connected vehicles, but they had a hard time to deliver. As a result, the automaker has been abandoned by growth-oriented investors, regardless of its lucrative F-series franchise.
Ford now is trying to show it can grow, and build a competitive moat around its commercial vehicle business before electric car leader Tesla Inc, other startups and larger technology players like Amazon.com Inc enter those markets.
The U.S. market alone last year accounted for more than $58 billion in sales of commercial trucks and vans, everything from Class-1 regular pickups to Class-7 heavy-duty trucks like the Ford F-750, according to ACT Research.
Farley is counting on a new hire to help build data-generated revenue from the automaker’s commercial vehicle business: Alex Purdy, former head of agricultural equipment maker Deere & Co’s Silicon Valley office.
At Deere, Purdy led efforts to provide artificial intelligence (AI) on the farm through smart equipment and founded John Deere Labs to help build a “sticky” relationship with consumers. Deere’s aftermarket parts and services business represented about 15% to 20% of $35 billion in sales in 2019.
In his first interview since his May hiring to lead automaker’s commercial vehicle connectivity business, Purdy said he “helped transition an industrial goods business that thought about metal bending into a service business.”
Among the products developed by Deere while Purdy worked there was the ExactEmerge planter that provides improved seed spacing at higher speeds, freeing up workers for other works; and the See and Spray distribution system that will use smart cameras to distinguish between healthy and unhealthy crops, allowing for less use of herbicides when it’s introduced next year.
Purdy, a 35-year-old former investment banker, and consultant grew up on a farm located in Okotoks, outside Calgary, Canada, and referred to himself as “passionate about smart connected vehicles, automotive, AI”.
Ford is the leading commercial vehicle brand in the United States and Europe – with shares of 40% and nearly 15%, respectively – thanks to the F-Series trucks as well as its Transit vans.
“Ford is the 900-pound gorilla in the commercial business,” said Rhett Ricart, a big Ford commercial vehicle dealer in Columbus, Ohio. “They’ve always had this competitive advantage.”
Previously this year, Ricart moved into a new 116,000-square-foot commercial truck center that dwarfs the old 18,000-square-foot building, and said he looks forward to working with Ford as they roll out extra connected services.
Purdy and other Ford officials want the automaker’s commercial customers to regularly pay for services, forming a revenue stream that flows throughout the vehicle’s life, beyond a one-time transaction every few years.
Ford officials talk about products as such geolocation services to optimize route planning and decrease gasoline usage, predictive products that enable for faster oil changes, and fleet management operations.
“When you measure time as a commodity like money, there are lots of those kinds of experiences that consumers are willing to pay for because they’re in the productivity business,” Farley said.
The goal for the automaker is to decrease the overall cost of ownership for its commercial customers; raise productivity, such as increased package delivery; and decrease downtime for customer vehicles, said Ted Cannis, head of Ford’s North American commercial vehicle business.
“So now the total addressable market, instead of being just new-vehicle sales is the entire process – parts, service, accessories, connected services,” he said.
Hans Schep, head of Ford’s European commercial vehicle business, said the transition in focus is playing out in meetings on quality. Five years earlier, those meetings were about how to decrease Ford’s warranty costs, he said. Now, the discussions are about how to keep its consumers’ vehicles on the road.
The automaker’s push in commercial vehicles will work hand-in-hand with the push to electrify its automobiles, including the F-150 and Transit.
As part of the efforts, Ford and Volkswagen said in June they would make up to 8 million units of mid-sized pickup trucks and commercial vans over the lifecycle of the vehicles, beginning from 2022. Farley believes the automakers’ alliance will enable Ford to use their combined scale to build its European commercial automobile business even more.
