General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) agreed to work together to design and develop a new generation of advanced 9-speed and 10-speed automatic transmissions to deliver better performance and fuel economy for vehicles. The two competing automakers partnered in this endeavor in order to comply with the new corporate average fuel economy (CAFE) standards set by the National Highway Traffic Safety Administration (NHTSA) and the Environmental Protection Agency (EPA).
In August, last year, the Obama Administration implemented a higher fuel economy standard requiring automakers to achieve 54.5 miles per gallon (mpg) for cars and light-duty trucks by model year 2017-2025.
Pros And Cons Of Tail Risk Funds
Editor’s note: This article is part of a series ValueWalk is doing on tail risk hedge funds. The series is based on over a month of research and discussions with over a dozen experts in the field. All the content will be first available to our premium subscribers and some will be released at a Read More
According to Jefferies Equity Research analysts Peter Nesvold and Elaine Kwei, General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) are expected to collaborate on other areas aside from designing and developing transmissions such as electrification, stop-start systems, and other technologies to achieve the fuel economy standards set by the government. Nesvold and Kwei emphasized that the new challenge confronting the automakers is aggressive.
The analysts noted that the collaborative agreement between General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) to develop 9-speed and 10-speed transmissions reflects the pressure confronting the automakers to improve fuel economy. In addition to the new regulation, Ford and GM recognize the fact that consumers are now considering better fuel economy as one of the primary criteria when buying a car, due to the high cost of fuel.
Nesvold and Kwei cited that GM and Ford would be able to save around $100 per unit in licensing fees by designing their own transmissions. GM designed the 9-speed transmission for front-wheel drive vehicles, while Ford designed the 10-speed transmission. Ford and GM will share share common parts but will manufacture the transmissions separately.
According to GM, the engineering teams of both companies already started their initial design work for the 9-speed and 10-speed transmissions. Their goal is to keep the hardware of the transmissions for both GM and Ford vehicles identical and to maximize parts commonality.
GM’s vice president of global engineering transmission, Jim Lanson, stated that the company’s collaborative agreement with Ford is beneficial for customers and shareholders. He said both companies will be able to use their manpower resources efficiently and deliver the transmissions faster to the market.