You are on page 1of 17

Introduction

This report explains the findings of the feasibility study conducted on the addition of
a new turbo-charged engine to the existing Chevrolet Silverado and GMC Sierra. Its purpose
is to evaluate the benefits of the new engine to see if adding it will be beneficial for General
Motors. This report should be used as a guide in the decision making process for investing in
a new engine technology. It is important for General Motors since millions of dollars can be
made or lost.
Chapter 1: The Need of a New Engine, discusses the already existing engines made
by GM, and the need for a new updated engine type. It explains the importance for the new
engine and the primary concerns of consumers.
Chapter 2: Research into the Turbocharged Engine goes into the details of existing
turbocharged engine in order to understand the good and bad components. It discusses how
the engine will work as well as benefits and disadvantages of it. The majority of the chapter
speaks of Fords already existing turbocharged V6 and the components of that engine.
Chapter 2 also explains some of the legal aspects of the building of a new engine.
Chapter 3: The Financials of the New Engine discusses the financial aspects of adding
the new engine. It goes into detail of the estimated costs and revenue the new engine will
produce as well as the financial availability of GM.
Chapter 4: Conclusions and Recommendations, summarizes the information given in
the prior chapters and explains my recommended plan of action.

CHAPTER 1: THE NEED OF A NEW ENGINE


The annual number of Chevrolet Silverados and GMC Sierras sold has not competed
with that of Ford since 2009. According to pickuptrucks.com, Fords truck sales in 2009 were
approximately 413,000 vs the 428,000 sold by General Motors. In 2013 Ford sales increased
by an 85% margin to 760,000. However, General Motors sales have only increased by 55%
to 664,000. Although an increase of 55% would normally be great, with a difference of
nearly 30% to that of Ford, GM needs to make some kind of change to their new line of
trucks.

The Current Engine


The current engine options and specifications for the Chevrolet Silverado were
gathered from the Chevrolet website and are outlined in Table 1.
Table 1: GM Engines

Powertrain
Fuel Type
Displacement (liters/cu. in.)
Horsepower @ RPM
Torque @ RPM
Fuel Injection
Axle Ratio

4.3L V6 Engine

5.3L V8 Engine

Gas/E85
4.3L/262
285 @ 5300
305 @ 3900
Direct Injection
3.23

Gas/E85
5.3L/325
355 @ 5600
383 @ 4100
Direct Injection
3.08

18 MPG
24 MPG

16 MPG
23 MPG

Fuel Economy
City (MPG)
Highway (MPG)

While these current engines excel in producing horsepower, they lack in fuel
economy which limits the market.

Concerns of the Consumer


2

According to consumerreports.org, two thirds of car buyers expect their next model
to provide much or somewhat better fuel economy. This means that the majority of people
searching to buy a truck will want the truck with the best fuel economy. Table 2, shown
below, was also retrieved from consumerreports.org, and outlines the most common reasons
people choose more fuel-efficient vehicles.
Table 2: Motivations for choosing a more fuel-efficient vehicle

Reasons

Percentage

Lower fuel costs

79

Latest fuel-saving technology

53

Environmentally friendly or green

52

Concern about dependence on foreign oil

43

Change in lifestyle or family

28

The U.S. Department of Energy backs up this data and states that fuel economy is
important to people for the following reasons:

It reduces oil dependency cost


It increases sustainable energy
It saves you money
It reduces the effects of CO2 on the environment

According to ENP Newswire, although for the past ten years most people have
expected trucks to come equipped with a V8 engine, in modern society the main
requirements when shopping for a new truck are, the combination of city and highway
mileage, horsepower, torque, towing capacity, payload and value.

With the one of the primary concern of new car buyers being good fuel economy and
GM made trucks lacking this quality, the most logical solution to the problem at hand is to
create a new, more fuel efficient engine.

Fords Market Takeover


With Ford producing more and more EcoBoost engines, the market for the
conventional engines is depleting. According to ENP Newswire, in the past three years, halfton trucks equipped with a V6 engine has increased by over 600%. The Ford EcoBoost has
alone contributed to over 90% of that growth.
The truck market is changing rapidly, without some type of change in the engine of
the Chevrolet Silverado, and GMC Sierra, these trucks will soon become obsolete.

CHAPTER 2: RESEACH INTO THE


TURBOCHARGED ENGINE
As spoken about in my proposal, I believe that adding a turbocharged V6 engine to
the Chevrolet Silverado and GMC Sierra will help to gain more customers and earn bigger
profits. However, the data that I accumulated from my research has shown that there are
many pros and cons of turbocharged engines.

How the Turbo Will Work


In the interviews I conducted with both Mr. Vierus, and Mr. Weiner, I asked how
exactly a turbocharged engine is different than a conventional engine. The turbo in an engine
allows for more air to be forced into the cylinders at one time, which in turn allows for more
fuel to combust and force the piston down with more force. In turn all these factors allow for
a dramatic increase in horsepower. Unlike the conventional way of adding more horsepower
through larger engines, the turbo does not add a significant amount of weight to the vehicle.
In theory the additional horsepower along with the lighter weight engine should allow for a
significant increase in fuel economy.

Benefits of a Turbocharged Engine


According to Mr. Vierus, Turbocharged engines are the future of the truck industry.
He explained that in his opinion, turbo-charged engines were going to take over the truck
market because they add an enormous amount of horsepower, torque, and towing capacity to
trucks, while still keeping a smaller engine. They are more efficient that the standard V8
engines. With smaller engines producing equal or more performance trucks of the future will
be able to become more compact, and adapt to the changes in the automotive market.
5

Fords EcoBoost
I have looked into Fords already existing turbo-charged V6 engine which they have
available for their half-ton pickup trucks. The purpose of my research into their trucks was to
see if indeed the idea is profitable. According to Fords website, starting in 2011, Ford began
putting a 3.5L turbocharged V6 engine into their F-series pickup trucks. They called this new
engine the EcoBoost and with 365 horsepower it far exceeded the other V6 engines of its
time. According to Raj Nair, Ford groups vice president, The F-150's proven 3.5-liter
EcoBoost has become the industry benchmark for advanced and efficient truck engines.
With the Ford EcoBoost out selling all General Motors trucks, I decided to compare
the two engines and observe what the true difference is. Table 3, created using data from GM
and Ford websites, compares the Ford EcoBoost and the current GM engines.
Table 3: GM vs Ford

Ford 3.5L
EcoBoost V6

Chevrolet 4.3L
V6

Chevrolet 5.3L
V8

365
420

285
305

355
383

16
22

18
24

16
23

Performance
Horsepower
Torque (lb-ft)

Fuel Mileage
City (MPG)
Highway (MPG)
*Source: Chevrolet and Ford websites

As shown in Table 3, the EcoBoosts turbo allows it to output more horsepower and
torque than the Chevrolet engines while still maintaining similar fuel mileage.
According to Fords website, the new 2015 F-150 will not only have the option of the
3.5L Ecoboost, but also a new 2.7L turbocharged engine. Although this new engine is not on
the market yet, this engine will get even better fuel mileage than the existing EcoBoost.

Disadvantages of a Turbocharged Engine


Although turbocharged engines do produce more power and better fuel economy, they
do have a few draw backs. While researching turbo-charged engines, I found that overall they
are more expensive to produce and therefor more expensive to buy for consumers. According
to usatoday.com, the turbo-charged Ford engine can add up to $2,395 when compared to the
other V6 they offer. While researching on Fords website, I found that the EcoBoost adds an
additional $1395 when compared to the conventional V8.

Fuel Mileage Fluctuation


Turbocharged engines do not always deliver the better fuel economy that they
advertise. This is caused by inconsistency in driving patterns for average drivers. According
to Phil LeBeau, CNBC Auto and Airline Industry Reporter, consumers who bought turbocharged vehicles reported fuel mileage lower than what was promised by the automakers.
Automakers record the estimated fuel mileage by the Environmental Protection Agencys
standards. These standards use cycle based testing, and have optimal conditions for the
vehicle.
Engines equipped with turbochargers do have the ability to get the fuel mileage that
the automakers promise, but with unprofessional drivers and variance in environments,
vehicles with turbos will have a larger fluctuation in their fuel economy.

Legality of New Engine


When designing new technology, one of the main concerns is whether or not the new
product is already patented. If the new product is already being made by a different company
there will be legal boundaries.
7

I researched the Ford EcoBoosts patents in depth to be positive General Motors can
legally produce a V6 turbocharged engine for their half-ton pick-up trucks. According to PR
Newswire, Ford has 150 patents on the current EcoBoost engine. The majority of the patents
are for the internal components of the powertrain that allow for their engine to run smoothly
with little to no turbo lag. There however is no specific patent concerning the usage of a
turbocharged engine in a half-ton truck.

CHAPTER 3: THE FINANCIALS OF THE NEW


ENGINE
When designing and build a new engine for the Chevy Silverado and GMC Sierra,
there are several things to consider. The main concerns of a business man, like you, will be
the overall cost of the new engine, the financial availability of the company, and the
projected profits associated with the new product. In this chapter, I will discuss the things
listed above in more detail, and explain how I researched into the financials of the new
engine.

The Cost of the New Engine


The cost of putting a turbo-charged engine in the pick-up trucks will depend on the
individual cost of the following:
1) Engine design
2) Manufacturing of the turbo
3) Additional labor cost in assembly
Engine Design- In order to produce the best and most efficient turbo-charged engine,
you need to have the best mechanical engineers working on the project. Table 4 shown

Table 4: Engineers Salaries


Percentile

10%

25%

50%
(Median
)

75%

90%

$49.41

$59.30

Hourly Wage

$25.27 $31.43

$39.47

Annual Wage

$52,55 $65,37
0
0

$82,100

$102,77 $123,34
0
0

below, was taken from the Bureau of Labor Statistics website and shows the average pay for
mechanical engineers in the US.

The engineers that will be assigned to design the new engine will most likely be in the
75th percentile to assure the engine be made to the best quality. I have estimated that three
engineers will work on the project for approximately 40 hours a week for 3 months. This
brings the estimated cost of engine design to $80,044.
Manufacturing- The new turbo will be made from cast aluminum to allow for it to be
both strong and light weight. According to continental-corporation, aluminum turbochargers
allow for 30% less weight than steel, and are more affordable for automotive manufacturers.
According to afsinc.org, the manufacturing cost of cast aluminum can vary depending on the
quality of aluminum chosen, and the precision needed for the product. After researching on
dhgate.com, I compared the average price for wholesale turbo chargers. Although without the
design from the engineers I cannot be completely accurate with the cost of the manufactured
turbo, I estimate the cost on the high end at $350 per unit. With 382,000 half-ton Chevrolet
trucks sold in 2013, and an estimated 40% of those trucks being sold with the new engine,
the estimated cost per year would be 53.4 million dollars.
Additional Labor- With a turbocharger added to the engine, the time it takes to build
one engine will increase. According to bloomberg.com, the average General Motors
automotive assembly line worker makes $28/hour. From the information gathered in the
interviews with Mr. Vierus and Mr. Weiner, I estimate the time it takes to mount the turbo
onto the engine block will be 15 minutes. If one workers task is to attach the turbo, the
additional cost of labor per unit will be $7. If the estimated 152,000 trucks are built with the
new engine, the additional labor cost per year will be 1.07 million dollars.
I estimate the total cost of adding a new engine to be approximately 54.6 million
dollars per year.

10

Financials of General Motors


To provide you with the most accurate feasibility study, I researched into General
Motors finances to see if now is a good time for the company to invest in a new engine.
Figure 1 is an excerpt from a financial table on GMs website showing the financial
statements from 2012 and 2013. The full table will be available in appendix A.

Figure 1: 2013 GM Financial Statement


With total net revenue increased by over 3 billion dollars, the company has room to
expand and research new products.

Projected Profits of the New Engine


The primary research I did in projecting the profits the new turbocharged engine was
a combination of looking at the example of Fords EcoBoost and General Motors recent
sales.
Sales- According to Forbes.com, the turbocharged 3.5L EcoBoost engine became the
number one engine sold in Ford F-150s in May of 2012. In the first two year of the

11

EcoBoost, the turbocharged engine was the chosen powertrain in around 43 percent of the
half-ton Ford pick-up trucks sold.
According to torquenews.com, by the beginning of this year Ford has sold more than
500,000 F-150s equipped with the turbocharged EcoBoost. This account for an average of
45 percent of all F-150s sold in the past 3 years. Figure 2, shown below, displays the past 3
years of F-150 sales of Ford. This data used to build this graph was collected from both
pickuptrucks.com and the social Ford page.
500000
450000
400000
350000

Number of Trucks Sold


(In Thousands)
All F-150's

300000
250000
200000

F-150's with Ecoboost

150000
100000
50000
0

2010

2011

2012

2013

Year

Figure 2: Ford Sales


As is seen from the data in the graph above, since Fords introduction of the 3.5L
EcoBoost, total F-150 sales and EcoBoost sales have increased. Total F-150 sales have
increased by approximately 34% since the EcoBoost.
I then took the increase in Fords sales from their new engine and projected the
numbers to the Chevy Silverado and GMC Sierra. With an increase of 34 percent in three

12

years, the Chevrolet Silverado will go from 382,000 sold in 2013 to 511,880 by 2016. The
Sierra will go from 143,000 to 190,000.
Profits- The cost of the new engine estimated at $357 per unit plus $80,044 per year
for engineers. Going by Fords example, the average increase of price due to the
turbocharged engine will be $1395 per truck equipped with the new engine. The new engine
will produce $1038 per truck. I estimated 40% of the first years trucks will be equipped with
the new engine and at $1038 per truck, the revenue caused by the new engine will be $218
million. After factoring in the cost of the engineers, the overall profits from the new engine in
the first year will be $217.9 million. With the increase of total sales due to the new engine, by
2016 this profit margin should increase to around $291.4 million for the year.

13

CHAPTER 4: CONCLUSIONS AND


RECOMMENDATIONS
General Motors has been one of the top manufacturers of trucks for the past 30 years.
Recently however, the sales have not competed with that Ford. The Chevrolet and GMC
trucks produce a relatively good amount of horsepower and torque, but one of the major
concerns of truck buyers is fuel economy.
Although General Motors has increased the number of trucks sold in the past few
years, with the addition of a truck equipped with a turbocharged V6 engine, I believe the
sales will increase more rapidly. Ford has already begun using a similar engine, but with the
top engineers, I believe GM can produce and engine with better fuel economy than that of
Ford.
After estimating both the cost and the revenue brought by the new engine, General
Motors should increase net profits by around $200 million. With this huge profit margin, as
well as the fact that the new engines will decrease carbon emissions and therefor benefit the
environment. I believe adding a new turbocharged V6 engine to the Chevrolet Silverado and
GMC Sierra is feasible and I strongly recommend General Motors begin to invest in the new
engine.

14

References
Ford. (2014). Retrieved July 12, 2014, from
http://www.ford.com/trucks/f150/specifications/engine/
Chevrolet. (2014). Retrieved July 12, 2014, from http://www.chevrolet.com/silverado-1500pickup-truck/specs/powertrain.html
U.S. Department of Energy. ( 2014). Retrieved July 20, 2014, from
http://www.fueleconomy.gov/feg/why.shtml
Ford Social. (January 26, 2012). Retrieved July 19, 2014, from http://social.ford.com/ourarticles/suvs/escape/guess-how-many-ecoboost-equipped-ford-vehicles-sold-in-2011/
PickupTrucks.com. (January 5, 2010). Retrieved July 20, 2014, from
http://news.pickuptrucks.com/2010/01/2009-year-end-top-10-pickup-truck-sales.html
PickupTrucks.com. (January 3, 2014). Retrieved July 20, 2014, from
http://news.pickuptrucks.com/2014/01/best-selling-pickup-trucks-december2013.html
ConsumerReports.org. (February 4, 2013). Retrieved July 19, 2014, from
http://www.consumerreports.org/cro/news/2013/02/survey-car-shoppers-want-betterfuel-economy-here-s-why/index.htm
Forbes. (June 3, 2012). Retrieved July 21, 2014, from
http://www.forbes.com/sites/dalebuss/2012/06/03/ford-guns-ecoboost-engine-techbrand-and-it-races-past-sync/3/
PR Newswire. (2014). Retrieved July 20, 2014, from http://www.prnewswire.com/newsreleases/ecoboost-contributes-125-new-us-patents-continues-ford-tradition-of-patentquality-63281852.html
USA Today. (May 16, 2013). Retrieved July 19, 2014, from
http://www.usatoday.com/story/money/cars/2013/05/16/ford-ecoboost-engineproblems/2168865/
CNBC. (February 5, 2013). Retrieved July 21, 2014, from
http://www.cnbc.com/id/100433542#.
Bureau of Labor Statistics. ( May 2013). Retrieved July20, 2014, from
http://www.bls.gov/oes/current/oes172141.htm
Continental. (July 15, 2014). Retrieved July 20, 2014, from http://www.continentalcorporation.com/www/pressportal_com_en/themes/press_releases/3_automotive_gro
up/powertrain/press_releases/pr_2014_07_15_turbocharger_en.html
15

GM. (2014). Retrieved July 19, 2014, from


http://media.gm.com/content/dam/Media/gmcom/investor/2014/feb/q4-earnings/GM2013-Q4-Chart-Set.pdf
Bloomberg. (October 18, 2012). Retrieved July 20, 2014, from
http://www.bloomberg.com/news/2012-10-18/mbdlhh0yhq0x.html
Torque News. (May 13, 2014). Retrieved July 21, 2014, from
http://www.torquenews.com/106/ford-f150-ecoboost-sales-top-half-million
AFS. (2006). Retrieved July 20, 2014, from http://www.afsinc.org/files/images/aluminum.pdf
Zobel, Derek. (June 18, 2013). Ford F-150 Chosen as Best Light-Duty Pickup Truck by
Pickuptrucks.com and Popular Mechanics Magazine. ENP Newswire. Retrieved from
http://www.lexisnexis.com.lib-ezproxy.tamu.edu:2048/hottopics/lnacademic?
verb=sr&csi=344171
Vierus, G. (July 4, 2014). Personal interview.
Weiner, E. (July 20, 2014). Telephone interview.

16

Appendix A: General Motors 2013 Financial Statements

17

You might also like