Ford's new engine announcement shows direction of auto industry

08/08/2011 4:30 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Better gas mileage and enough power to keep customers happy.

You can see where the global auto industry is headed in Ford Motor’s (F) announcement that it will build its first three-cylinder engine.

The small engine—the smallest Ford has even used—will go into global car lines such as the Fiesta and Focus. By shrinking the size of the engine and using direct-fuel-injection technology Ford hopes to get up to a 20% improvement in gas mileage from these engines over its current smallest four-cylinder engines

And thanks to the addition of turbochargers, Ford thinks it will be able to get enough va-va-voom from its three cylinder engine to make up for their smaller displacement.

Ford hasn’t identified which auto supplier will provide the turbochargers for the three-cylinder engine. Honeywell International (HON) supplies turbochargers for the Ford Flex and Lincoln MKT crossovers and for the Taurus SHO and Lincoln MKS sedans. Borg Warner (BWA) supplies turbochargers for the F-150 pickup, Explorer SUV, and Focus. In Europe Robert Bosch and Continental (CON) also make turbochargers.

Regulators in the United States are developing rules—the auto industry has actually signed off on them--that would require fleet average fuel mileage of 55 miles per gallon by 2025. The current standard of 24.1 miles per gallon was raised to a 2012-2016 goal of 35 miles per gallon by the Obama administration in May 2009.

Full disclosure: I don’t own shares of any stock mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own shares of any stock mentioned in this post. The fund did own shares of Borg Warner and Ford Motor as of the end of June. For a full list of the stocks in the fund as of the end of June see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

 

 

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