Ford has big goals for software sales to small business truck fleets
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[March 14, 2024] By
Joseph White
DETROIT (Reuters) - HomeTown Services, a heating and cooling repair
company in Tulsa, Oklahoma, is getting ready to install driver
monitoring cameras in some of its trucks, and already uses streamed data
to remind drivers not to sit too long in idle vehicles, wasting
gasoline.
"People will sit in a vehicle for an hour or two," said Del Underwood,
vice president for purchasing and fleets for the company. Now,
technicians get a text message instructing them to either turn off their
trucks or move to the next assignment.
That may annoy some employees, but it is good news for Ford Motor Co's
commercial vehicle unit, Ford Pro, which has placed a big bet on
software-related services. Ford Pro hopes selling connected-vehicle
services such as driver monitoring systems to small and medium sized
fleet operators will help generate as much as $1.8 billion in annual
profit within two years.
Ford CEO Jim Farley has urged investors to think of Ford Pro's bundle of
software and vehicle sales, not Tesla, as the "future of the automotive
industry."
Companies including Geotab and units of Verizon dominate the market for
telematics services provided to large vehicle fleets, said Mike Ramsey,
vice president at technology consultancy Gartner.
But Ford "can get all the guys buying Ford Transits for their plumbing
business," Ramsey said.
Small and medium-sized business fleets in North America and Europe
constitute a large enough market that Farley has told investors Ford Pro
could earn 20% of its pre-tax profit from selling software and services
within two years.
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Farley has forecast Ford Pro pre-tax profits at $8 billion to $9 billion
this year. He has promised investors Pro can earn fatter margins than
its consumer businesses, partly due to services and maintenance business
driven by telematics connections to vehicles and data.
In 2023, Ford Pro had 500,000 paid subscriptions for software services.
"It's up 46% and the margins are over 50%," Farley told analysts in
January. He said 12% of vehicles Ford Pro sells have software
subscriptions attached and he wants to triple that.
Ford Pro Chief Ted Cannis told investors last May that software
subscriptions could bring in $2,000 a vehicle in revenue per year, and
by adding on services such as insurance, Ford could boost that revenue
per vehicle to $4,000 to $5,000.
Ford uses telematics connections to prompt commercial vehicle owners to
get parts replaced before they break. Boosting the rate of service
subscriptions by one percentage point can "add about $30 million of
incremental EBIT to the business," Ford Pro Chief Financial Officer
Navin Kumar said last month.
Ford is also selling data from its vehicles to large fleets that
subscribe to rival telematics services.
FORD'S FERRARI
While Farley sees big dollars, investors so far have not boosted Ford's
share valuation to anywhere near Tesla's level. The Silicon Valley
electric vehicle company is worth more than 10 times Ford's market
capitalization.
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![](../images/031424PIX/busine87.jpg)
Ford vehicles are parked at a Ford event in Dearborn, Michigan,
U.S., May 22, 2023. REUTERS/Joseph White
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Morgan Stanley analyst Adam Jonas has called Ford Pro "Ford's
'Ferrari.'" But he also asked "How long can Ford Pro fund losses in
the vertically integrated EV strategy?"
In 2023, Ford Pro earned $7.2 billion in pre-tax profits and had a
12.4% pre-tax profit margin. By comparison, Ford's overall pre-tax
profit margin was just 5.9%, reflecting the cost of United Auto
Workers strikes at key U.S. factories and a $4.7 billion pre-tax
loss on electric-vehicle operations.
Ford Pro's above-average profit margins have prompted rivals to
counter.
Stellantis last year grouped its commercial vehicle operations under
a new name: Stellantis Pro One. Beyond emulating Ford's use of the
word "Pro," Stellantis said it aims to generate 5 billion euros
annually from sales of connected services.
General Motors last year reorganized its North American commercial
vehicle business to sharpen competition with Ford Pro.
Another challenge for Ford Pro will be to make paid subscribers out
of customers who currently get software and telematics services for
free.
Fize Electrique, an electrical contractor in Quebec, is using Ford
Pro software during a one-year free trial to monitor 12 Ford EVs it
purchased for battery charge levels. That is crucial because EV
batteries lose driving range faster in Quebec's cold winter weather.
"When we got the first E-Transits, I was watching the numbers all
the time," said Alain Fiset, who oversees the company's fleet. Data
pulled from the vehicles "helped us understand what's the state of
the battery."
That in turn convinced Fize to accelerate the move to an
all-electric fleet, taking advantage of Quebec's relatively stable
power rates.
Ford Pro is experimenting with new ideas for software services, and
not all the projects work out, Dave Prusinski, chief revenue officer
for Ford Pro's software operations, said in an interview.
In 2021, Ford and business software company Salesforce announced
plans to develop a subscription software service called VIIZR that
would automate work orders for contractors. But that project has
been wound down, Prusinski said.
"Realistically it was not our core," he said. "There were some great
solutions on the market. We were seeing traction, we couldn’t catch
up fast enough."
(Reporting By Joe White, editing by Ben Klayman and David Gregorio)
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