Ford to eliminate dealers in metro areas
FoMoCo has announced a plan that involves removing a sizeable amount of their dealer network over the next 18 months. The focus will be on large, urban centers where Ford dealers are forced to compete with one another in an effort to squeeze out every possible ounce of market share. The areas most affected will be in the Northeast and Midwest, but plans include scraping dealers as far as San Francisco, so no area is out of the equation.
Many dealers throughout the U.S. have requested this change over the years, but choosing which dealers will go proves to be the biggest challenge. Ford has already met with some of the largest dealers and is encouraging them to buyout some of the lesser outlets in their area.
Whether this is part of Ford's Bold Moves campaign remains to be seen, but in an interview with Automotive News, Tom Addis, the national dealer counsel chair for Ford, said it best, "...everybody wants to go to heaven, and nobody wants to die."
[Source: Automotive News]
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Reader Comments (Page 1 of 2)
Richard Warren 8:51AM (8/14/2006)
A good plan.
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Tom W 8:51AM (8/14/2006)
Good riddance to all car dealers.
It's a flawed business model that brings out the worst aspects of human behavior.
Dealers should be replaced with factory owned outlets so the manufacturers have more control over prices and customer service.
In most businesses, the front line where the customer meets the product is designed to be an enjoyable satisfiying experience. Car dealerships are anything but that. The only reason people tolerate dealerships is because they have no alternative. I believe that redesigning the entire business model to be more customer friendly would increase sales and repeat business.
I realize this is not Ford's stated goal, but any mention of dealerships gets me fired up.
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Dave 9:23AM (8/14/2006)
This is going to get ugly...
Forget how long ago, but Ford was trying to use the Indianapolis market as a test for factory-owned buying and repair centers. Seemed like a great idea but the dealership owners were up in arms in a hurry and squashed the test.
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Chris 9:30AM (8/14/2006)
I think factory owned dealerships is a very bad idea. Sure than can control costs and what not but it just adds another element to manage in very complex industry. Dealerships are realy no different than any other franchise business like McDonalds, Starbucks, and almost every other large chain. The current system DOES WORK and Toyota is an example of it. Some dealers are better than others much like a McDonalds and I have always had a good relations with my dealer from whom I have leased 5 vehicles from.
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JJ 9:41AM (8/14/2006)
Not to mention if a dealer has been there for so long and is doing well... who picks who stays and who goes? sometimes because someone is larger and has more money, doesn't neccesarrily make them a better dealership.
For instance where i live i can think of several dealerships in my area that are owned by different people and each does more business than the local "mega" dealer seperately and generally have higher feedback scores on average.
But the mega dealer is the one you always hear about and the dealer principle for that has more money than the other dealerships...so does that make him better even though he does less business?
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MikeW 9:52AM (8/14/2006)
plus in every state except alaska the manufacturer is prohibited from selling directly due to anti-collusion/price fixing (or similar) laws.
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porker 9:53AM (8/14/2006)
The reason that factory-owned dealerships won't work is ingrained into the American psyche. Auto dealerships grew up from the old system of "horse-tradin'" that was common when four legs, not wheels, ruled the road. GM tried to get people away from the idea of this "horse-tradin'" with its Saturn division, and, in a limited experiment, with the Aurora, but it has not produced a groundswell of support.
If Ford does this, who decides which dealers die? Ford, obviously. This leads to the conclusion that only the large-volume dealers (usually the absolute worst place to buy a new car) will be the favored dealers. The small-town, low volume dealer usually has to make a name for itself in service after the sale in order to stay in business, but it's the big-box, high-volume dealer that the factories love.
Bad move, Ford.
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Gardiner Westbound 10:02AM (8/14/2006)
Shrinking market share results in superfluous dealers. It is inevitable the domestic auto retail network will contract for the same reason there are few blacksmith shops. A large proportion of consumers consider its wares irrelevant. Early correction is unlikely.
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Elliott 10:15AM (8/14/2006)
Yeah, that's what we need, LESS COMPETITION! Yikes. Why does this sound like a good idea to anyone? Fighting over every last penny is what American capitalism is all about.
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Dirk Dundenburg 10:33AM (8/14/2006)
I don't like it. When I went shopping for my Escape the absolute worst experiences were from the large Mega-Auto Mall style dealerships. There's no personal service, your just a number or wallet and they want to sell to you as quickly as possible and move on to the next customer. My best experience, and where I ended up buying from, was a small dealership with about 10 employees total and who had been in business for over 50 years. They took the time to answer all my questions, showed me all the numbers and there was no sales BS, it seemed to be on a much more personal level.
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MadeinDetroit 10:36AM (8/14/2006)
Porker could you expand a bit further on the Aurora dealership experiment please? I'd be interested to know more.
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ROBERT DAVIDSON 10:37AM (8/14/2006)
I HAVE SELDOM MET A FACTORY MAN THAT HAS ANY IDEA HOW TO RETAIL A NEW CAR..THEY ARE GREAT AT TELLING YOU WHAT YOU CAN HAVE AND NOT HAVE,,,BUT TALK TO A RETAIL CUSTOMER, NEVER..WITHOUT A GOOD DEALER NETWORK ALL MANUFACTURERS WOULD BE IN A HEAP OF TROUBLE. I DONT THINK THE MANUFACTURERS HAVE THE MONEY TO REPLACE ALL DEALERS,WHAT DO THEY DO WITH USED CARS? IT WOULD BE INTERESTING AGAIN. IT DIDNT WORK BEFORE,,WHY WOULD IT WORK NOW?
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Eric L. 10:51AM (8/14/2006)
I have been in the car business for over 30 years and just recently sold our Ford dealership. Over the years Ford, to the dealers' objections, added as many dealer points as they could. Now they say they have too many! We told you so. As to having the factory own the stores, Ford did this in several markets like Tulsa. It was a complete disaster. Their market share went down and long time employees left in droves resulting in poor customer satisfaction. They eventually sold the dealerships back to dealers. Also think how many billions of dollars it would require to buy 1500 to 2000 dealerships, the money needed would suck Ford dry.
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ROY PEOPLES 11:05AM (8/14/2006)
FORD HAS BEEN LOOKING FOR A FINAL "FIX" FOR THEIR PROBLEMS. THIS MAYBE IT "THE FINAL NAIL IN THE COFFIN"
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Tom 11:20AM (8/14/2006)
Local competition is the traditional way of doing business in our country. Multiple outlets for a product create competition and help keep prices reasonable.
If there are three Ford dealers in your town and two of them close, prices will go up at the one that is still open.....Economics 101. It doesn't matter who owns the remaining dealership, but Ford owning it is the ultimate nightmare.
If you're using a factory outlet mall as your model, remember the factory does NOT own the outlets. They are franchises or independent businesses.
Americans are forgetting how to be customers. You can argue with the price you are given. Bargain for your purchase, tell the salesman his offer is no good. Begin to leave the showroom. Tell him/her how much you will pay.
One of my friends faxes a description of the car he wants to three dealers and invites them to quote by return fax with the signature of the sales manager. He buys the car from the lowest quote.
Tom
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Tom W 11:32AM (8/14/2006)
A little reminder...
http://www.bankrate.com/brm/news/auto/car-guide-2004/dealer-scams1.asp
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anahit 11:54AM (8/14/2006)
"...in every state except alaska the manufacturer is prohibited from selling directly due to anti-collusion/price fixing (or similar) laws"
I've heard something like the above asserted multiple times on Autoblog. I'm skeptical it's true. MikeW, do you have a cite or source for that?
Auto manufacturers selling to the public in today's car market likely doesn't violate federal antitrust laws. I'm not going into details because it'd take forever. Suffice to say I'm relatively familiar with federal antitrust laws.
Under typical state antitrust laws dealers likely can also sell direct. The issue is whether states stop car makers from selling direct by having specific statutes saying so. I'm aware of a couple states who, at least as of a few years ago, had these statutes. As for the other 45+ states, I've no idea.
I looked up my state's regulation of auto dealers and didn't see a statute barring car manufacturers from selling direct.
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jamie 11:59AM (8/14/2006)
Yup, car dealers are in for a rough ride.
Downsizing the dealership network is an absolute necessity for both Ford and GM. Toyota manages to stay very healthy with under 1500 dealers in the U.S. Meanwhile Ford and GM are burning dollars to keep their bloated networks on life support.
No wonder Toyota dealers are happy! $$$$$$$$$$$
Internet sales alone are killing the dealers off one by one anyway.
However, there will always be room for service centers, but new car dealers should be drastically cut to one dealership per 100,000 people.
Secondly Ford, Lincoln, Mercury must merge and redefine their products. A single delivery channel would cut costs enormously.
Ford should continue marketing all that they currently do.
And Lincoln should concentrate on the luxury market.
But Mercury should be reinvented as the Hybrid moniker for FoMoCo.
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Chris M. 12:36PM (8/14/2006)
See what you people have done by not buying Fords? Shame on you all! Good, hardworking American salesmen are being put out on the street because you want to support American autoworkers by driving your Toyotas and Hondas.
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AZMike 12:36PM (8/14/2006)
oh, TomW,
I should have known that when it came to hating dealerships, you'd be here.
loved the link you provided; if only the information was accurate. I found five really major errors, with the largest making 'holdback' the same as 'factory-to-dealer cash.'
holdback is 3% of the total invoice price, and has absolutely nothing to do with any cash incentives the dealer receives from the factory. holdback is a constant number; incentives change all the time. it's also interesting to see mention of gap insurance; this is something that no one should be without that has a contract longer than 36 months. if you've ever had a car stolen or totalled, the difference between the vehicle value and the loan balance can be $10,000 or more. gap insurance covers this, for a cost of about $395.
Ford can't legally force any dealerships to close (those darn franchise laws, Tom), and will need to buy out any locations it wants to close with big $$. it's really ironic that that they want to close 'urban' locations; the property here will be much more expensive than buying out rural locations, and cost them even more.
GM and Ford had tried these factory locations before (Indianapolis, Tulsa, Oklahoma City, and Salt Lake City for Ford; the San Fernando Valley in Los Angeles for GM). both manufacturers failed miserably, with low scores for both sales volume and CSI.
I got to experience what the 'factory stores' would be like when I lived in Hawaii for five years, where competition was replaced by collusion. the average car was about $5,000-$12,000 over MSRP everywhere; a 'clearance sale" price (usually for a two year old, but still-new car) was MSRP. I bought a new car on the mainland, and had it shipped over to the Big Island of Hawaii where I lived. I went to a local Hawaiian credit union to get it financed. as a matter of course, I brought the invoice in with me. when I brought it in, it stopped all activity; on one there had never even seen an invoice before, and they suddenly realized that they had been getting screwed forever. this is what it would be like having factory stores, with prices being manipulated by just a very few companies, not the thousands we now have in dealer networks today.
if you've ever had a difficult or recurring warranty issue, it's the dealer who's on your side, not the factory. I can't tell you how many times I've seen a dealer has personally taken care of a problem for a customer, and take the loss, just to make the customer happy.
it doesn't seem to be in Ford's best interest to be spending hundreds of millions of dollars buying out dealerships when it is in such a precarious financial position. if sales drop, there will be dealerships closing for lack of adequate sales, and the market will correct itself, and Ford won't need to spend a dime to do it.
Mike
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