Retail misadventure struck a nerve with dealers
Factory ownership of stores and attempts to sell vehicles online cost Ford a bundle in good will
Problems arose when Ford Motor jumped into the retail business, trying to keep up with brash new entrants that were shaking up the industry by promising a retail revolution.
The skirmish had its roots in 1993 when consumer electronics giant Circuit City Stores Inc. opened its first CarMax used-car superstore in Richmond, Va. The concept caught on.
Challengers sprouted up, most notably AutoNation USA, which was owned by publicly held Republic Industries Inc. of Fort Lauderdale, Fla. Republic's flamboyant chairman was H. Wayne Huizenga, a Wall Street-savvy entrepreneur who had amassed a fortune in the videotape-rental and waste-management industries.
The superstore chains planned to go national, dominating used-car sales with huge $25 million stores offering a vast selection of late-model vehicles at no-haggle prices. They provided longer warranties and money-back guarantees. Touch-screen kiosks let customers browse inventory electronically from the showroom.
Ultimately, the superstore chains invested too much in real estate, did not have enough late-model used cars and set prices too high. AutoNation USA superstores shut down in 1999, leaving CarMax the sole survivor in the field. But superstores left a legacy of improved used-car marketing techniques.
In response to superstores, Ford and other manufacturers started used-vehicle certification programs for dealers in 1996. Certified vehicles got extensive inspections and reconditioning and were offered with warranties and roadside assistance.
By the time Ford Motor responded to the used-car superstore phenomenon, the aggressive Huizenga had opened a new front in the retail revolution. In late 1996 Republic Industries began gobbling up new-car dealerships.
Six other dealership groups went public in 1996 and 1997, joining Republic's acquisition frenzy. But they did not grow as much or as fast.
Republic's buying spree caused concern among some auto executives, who feared that large retailers with access to public capital would be too powerful. In 1997, using its stock as currency, the company snapped up 163 dealerships with 223 franchises and annual revenue of $9.6 billion, becoming the nation's largest dealership group by a wide margin.
Ford plays Huizenga's game
Ford was one of the holdouts in 1996, rejecting public dealership groups that wanted to buy dealerships. In 1997, Ford gave in and let Republic buy dealerships and, like other manufacturers, placed restrictions on the number of franchises a public dealership group could hold.
Some Ford execs decided to beat Huizenga at his own game. In 1997, the company said it would separately merge dealerships in a couple of markets by operating them as joint ventures with local dealers. The plan was to experiment with some of the same retail concepts that Huizenga touted, such as huge inventories, salaried salespeople and no-haggle pricing.
The experiment evolved into the Ford Retail Network. Eventually, Ford wanted to consolidate its dealerships in 130 markets, with the automaker being a minority shareholder in the businesses.
In 1998, the automaker established a subsidiary, Ford Investment Enterprise Corp., to invest in dealerships. Ross Roberts, former general manager of Ford Division, headed it.
"We simply aren't going to be able to do business as we did in the past," Roberts told the Automotive News World Congress in 1999.
5 trial markets
The company invested in retail operations in five markets: Oklahoma City; Tulsa, Okla.; Salt Lake City; San Diego; and Rochester, N.Y. The Rochester operation was a joint venture with Republic. Attempts to expand the initiative in other cities failed.
The Ford Retail Network, later named the Auto Collection, infuriated dealers, who feared factory-owned stores would get special treatment.
Dealers heckled Ford executives at the 1999 National Automobile Dealers Association convention in San Francisco. The son of a Ford dealer stood at Ford Division's make meeting saying, "I thought we were your Ford Retail Network." The comment drew hearty applause from those packed into the room.
Ford's effort to manage dealerships tottered. The Auto Collection stores cost Ford sales, and the company's 1999 attempt to overhaul them by dropping no-haggle sales and returning to commission-based pay failed.
State dealer associations lobbied state legislatures for restrictions on factory-owned dealerships. By 2000, most states barred manufacturers from owning dealerships.
Ford abandoned its retail initiative in 2001, selling off the dealerships. Ironically, the Tulsa Auto Collection went to UnitedAuto Group of Detroit, a publicly held dealership group to which Ford had refused to give franchises in 1996 when it opposed public ownership.
Even before the factory store misadventure ended, the growth of the Internet posed another challenge. Internet companies seeking a piece of the automotive market appeared as a potential threat in the mid-1990s. These companies temporarily flourished on millions of dollars in venture capital that flowed during the investment community's short-lived love affair with Internet-related businesses.
There were a couple of types of automotive dot-coms.
Ford barred dealers from selling vehicles to online brokers. And along with other manufacturers, Ford said it would deny franchises to Internet companies trying to buy dealerships.
But what miffed dealers was Ford's attempt to sell vehicles directly to consumers online.
Ford launched Web sites to sell off-lease vehicles to consumers in several markets. The sites allowed customers to shop for used vehicles that were offered at no-haggle prices. Customers arranged purchases online and picked up their vehicles at local Ford dealerships. Dealerships handled the paperwork and delivered the vehicles, but Ford set the retail price.
One of these sites was aimed at Houston consumers, which touched off a legal battle. Texas forbids manufacturers to have a retail business, and state authorities frowned on the program.
The Texas Motor Vehicle Division threatened to fine Houston Ford dealerships that sold vehicles through the Web site, forcing Ford to close the site.
Ford challenged the state in federal district court, saying the move to close the site was unconstitutional. Ford lost in federal court in Austin, Texas, in 2000 and in the federal court of appeals in New Orleans in 2001. Later that year Texas charged Ford a $300,000 penalty for retailing vehicles online.
Ford finally took dealer concerns to heart. In 2000, it set up a joint venture with dealers called FordDirect.com. The online venture thrived when many Internet firms collapsed for lack of capital and business acumen.
FordDirect.com was set up to refer leads to Ford dealers for a fee. Ford owned 20 percent of the venture, and dealers owned 80 percent. It generated 130,000 leads a month for dealers in 2002, up from 90,000 a month in 2001.
In the end, the retail revolution really wasn't much of an uprising.
Many dot-coms and used-car superstores folded. Large, publicly held dealerships bear little difference from privately held megadealerships. And dealerships as a whole emerged from an intensely competitive era with improved technology and sales processes.
Bert Boeckmann, president of Galpin Motors in North Hills, Calif., who had tried to help Ford consolidate dealers in California's San Fernando Valley, drew conclusions on the retail revolution in a 1999 speech during the J.D. Power and Associates International Automotive Roundtable in San Francisco.
"Corporate America will never replace the adventurous spirit of the entrepreneur, nor will standardized operating procedures replace the special relationship that the entrepreneur has with his employees and customers," Boeckmann said. "That's something money can't buy."