Ford Motor Co. may lose money and the goodwill of many dealers as it attempts to take over dealerships in selected U.S. cities. But doing nothing is a greater risk, a top Ford executive said.
'There is risk with any change,' said Chief Financial Officer John Devine. 'But given the extent of the change in the distribution system, there is a helluva lot of risk in not changing at all.'
To operate the new ventures, Ford will establish a new department independent of the company's sales and marketing staffs, he said in an interview.
Ford wants the radical retail experiments to be catalysts, prompting dealers to consolidate dealerships without the company's involvement, he added.
Devine is the first Ford executive to comment on the company's plans since Ford confirmed the strategy in May.
In Indianapolis and Salt Lake City, Ford is asking the owners of Ford, and Lincoln-Mercury dealerships to sell out to a corporate venture controlled by the company. The new entity - jointly owned by Ford and the dealers - would oversee sales and service in the entire market. Ford wants to create a network of superstores and satellite service centers that work together to sell vehicles and service them.
The new superstores would use no-haggle selling and salaried sales personnel and would have huge vehicle inventories.
ON ITS OWN
'This could be replicated in other parts of the country. We don't necessarily have to participate in all of these,' Devine said. 'This doesn't have to be Ford-owned to make it worthwhile. We hope that these markets will act as a catalyst.'
Devine confirmed that Mazda vehicles eventually may be sold in some of the proposed multibrand superstores.
In Salt Lake City, Ford wants to replace 17 dealerships with five multibrand superstores retailing Ford, Lincoln, Mercury - and eventually Mazda - vehicles under one roof, according to sources familiar with the plan. Ford owns a controlling interest in Japan's Mazda Motor Corp.
Ford is seeking dealer consolidation is as many as eight markets in the United States and expects dealers in at least three to agree, according to sources.
Devine would not confirm those figures.
Devine stressed that the new retailing venture will be an independent operation within Ford -not the responsibility of marketing and sales or any existing department. In the past, auto manufacturers have had little success at retailing.
'This business will be fully separated from running the car business. It isn't just another arm of the automotive business,' Devine said.
WALL STREET WORRIES
Meanwhile, Ford's plans are raising eyebrows on Wall Street.
One Wall Street analyst has called Ford's move 'a complete reversal' of the Big 3 effort to focus on core competencies - designing, assembling and marketing vehicles. The ventures could also drain cash from a company that is trying to cut $1 billion in costs in 1997.
'Vertical integration has been problematic as evidenced by the Big 3's current efforts to unwind positions in auto rental companies and component operations,' said John Casesa of Wertheim Schroder & Co.
'The plan appears quite costly as a number of dealers will likely require immediate payment from Ford and will be unwilling to trade their dealerships for an illiquid ownership stake in a fledging company,' Casesa said in a written analysis. 'Further, Ford will have to directly invest in new facilities and facility upgrades.'
CarMax and AutoNation USA, two chains building national retail networks, spend up to $15 million for each superstore, Casesa said.
Devine would not specify how much Ford is willing to spend on its retail transformation. In Indianapolis, Ford told dealers it is willing to spend $155 million on the venture in that market. Devine neither confirmed nor disputed that figure.
Dealers have said they expect to be offered cash, stock in the new venture or Ford Motor Co. stock. The automaker would purchase the Ford stock on the open market, Devine said, which would cost Ford money.
'I am not suggesting that that is what we are going to use for currency,' he said. 'But if you used Ford stock, you would have to go and buy it in the marketplace.'
WAGNER AT HELM
The situation boils down to this: To save cash, Ford's best strategy is to persuade dealers to take stock in the new ventures. But of course stock in an unproven venture carries the most risk for the dealers.
Asked if Ford will sweeten the offers to persuade dealers to take stock rather than cash, Devine said, 'I don't want to get into the structure of that because we are in some sensitive discussions with dealers. It's too early to say how it is going to go. You get into issues like tax issues and a dealer's tax planning. Sometimes (stock) can help on that basis.'
Ford devised the radical plan within the last eight months under the leadership of Tom Wagner, Ford vice president of customer communication and satisfaction, Devine said.
'Are we going to have dealers 10 years from now? Absolutely. Our intent is not to own the dealer body. That is not what this is about,' Devine said.
'It is about how you resize the organization, relocate and what individual stores look like.'
Vast changes in retailing - from Wal-Mart to the Internet - have created new customer expectations. The automotive industry has failed to keep pace, Devine said.
'This is about how customers want to buy and service cars. How much time they want to take. Do they want to buy on the Internet?' he said. Big-box retailing may or may not be the answer. But Ford executives believe they have to jump into the fray to find out.
'You can market-research something until the cows come home,' Devine said. 'You really have to get out there and get in the marketplace and participate. That is what we are attempting to do.
'There is a revolution. Our intent is to be very much a part of it and to be in front of it,' he said. 'What it looks like five or 10 years down the road is anything but clear right now.'