Many dealers are fuming over Ford Motor Co.'s decision to channel some vehicles from rental fleets to open Ford Credit auctions.
The dealers fear the change opens a Pandora's box. It will give such competitors as CarMax, AutoNation USA and competing used-car dealers a crack at late-model vehicles that dealers previously had to themselves, they say.
'It allows the competition to buy and advertise current-year 1997 models,' said Bruce Caudill, chairman of the Lincoln-Mercury National Dealer Council and owner of Kent Lincoln-Mercury in Kent, Ohio. 'The dealers are very concerned over this.'
The dealers also fear the new strategy, which Ford says is a 90-day test, could bid up prices for the vehicles, cutting their profits. Used cars are the most profitable part of most dealers' operations.
The off-rental vehicles formerly were sent to closed auctions only attended by Ford and Lincoln-Mercury dealers.
One used-car superstore, Driver's Mart Worldwide, was happy to hear about the Ford test program.
The change allows his company to 'pay the manufacturer more because our process is more efficient,' said Gary Marcotte, director of operations of Driver's Mart, based in Grand Rapids, Mich.
The 90-day test, announced earlier this month, remains in effect until Sept. 15 and does not include all vehicle lines. The majority of the cars will be Taurus, Sable, Contour and Mystique models with higher mileages than others returning from rental fleets.
The vehicles in the program are called repurchase vehicles. Ford sells them to rental fleets and guarantees to buy them back. Ford then channels them to used-car auctions.
Tom Cunningham, vehicle remarketing manager for Ford Automotive Operations, said: 'It's just a test of the value of our vehicles in a broader market.'
In a memo sent to dealers this month, Ford stated the cars in question would be primarily ' 'rougher' and higher-mileage repurchase cars.' Many of the vehicles will be those that passed through auctions at least once without being sold, called 'no-sale' units.
Ford isn't the first automaker to rethink closed auctions. Late last year, General Motors lifted its '45-day bar' rule.
Under the rule, GM dealers had to hold onto repurchase vehicles for 45 days. After the rule was lifted, dealers could immediately sell the vehicles to other used-car competitors, broadening the market and strengthening demand.
Ford is working hard to raise values of vehicles returning from leases and rental fleets, according to a source familiar with the automaker's plans.
Lower used-vehicle prices threatens Ford's huge lease business. Ford guarantees a certain value - the residual value - of a leased vehicle when the lease is over.
Say, for example, that a Ford Explorer returns from a lease with a residual of $15,000. If a falling market drops the value of the sport-utility to $14,000, Ford loses money.
In May, the company began paying Ford and Lincoln-Mercury dealers incentives to buy off-lease vehicles and help sustain used-car prices - another move to boost used-vehicle prices.
The automaker did not inform its Ford or Lincoln-Mercury national dealer councils of the auction change, which takes effect this week.
'This wasn't run by dealer council,' Caudill said. 'I don't want my dealers to think I was in on this.'
COUNCIL SEEKS MEETING
The Ford National Dealer Council has asked to meet with Ford Division General Manager Ross Roberts to discuss the auction changes. No meeting date has been set. Roberts was one of three signers of the memo sent to dealers.
The others were Jim O'Connor, vice president and general manager of Lincoln-Mercury; and Jim Gwaltney, executive director of rental, lease and remarketing operations.
'These units have always been a good source of business for our dealers,' said Allan Vigil, chairman of the Ford dealer council and president of Allan Vigil's Southlake Ford in Jonesboro, Ga. 'That's been kind of a sacred cow for the dealers.'
'We want to have some input before this is carried past the test stage,' Vigil said.
The fact that the program involves so-called 'no-sale' units worries Caudill and Vigil more than the high-mileage, damaged units.
'If these are high-mileage and damaged units, we have no problem with that,' Caudill said. 'But if they are going to be a mixture of cars, then we would like to keep them at closed sales, especially current-year models.'
Ford also announced it was raising auction fees from 1 percent to 1.25 percent. Dealers who buy vehicles at closed auctions pay the fee to the manufacturer, which uses the proceeds for advertising, reconditioning and other expenses.
The unidentified source mentioned above said that previously the rental repurchase units went through Ford Motor Co.'s closed auctions. Now the affected units will go through Ford Motor Credit Co.'s open auctions.
'100% IN FAVOR'
Mike Richardson, president of ADT Automotive Inc. in Nash-ville, Tenn., the nation's second-largest auto auction company, applauded Ford's change.
'They (Ford) have been putting nicer off-lease (vehicles) into closed sales for some time,' he said. 'This is the first time they've put traditional closed-sale stuff in open sales, and we're 100 percent in favor of it.
'I really do believe they should do everything they can to maximize residuals in their closed sales,' he said. 'Residuals are under pressure, and they're going to work at it.
'The one segment that should be overjoyed is independent used-car dealers,' he said.
'It's exactly this kind of car they want, and their participation can't do anything but get residuals up.'
Driver's Mart's Marcotte said the policy is a sign Ford is admitting it can get more for its vehicles outside the traditional closed auction system.
Said Marcotte: 'The days of a system that bends over backward to make sure dealers get the first and best no matter what the economic consequences are - those days are coming to an end.'