When Ford Division closed a neighboring factory-owned dealership, Ford dealer John McCallan seized an opportunity.
He is beefing up his service staff, adding a new adviser and two technicians at his store, Pearson Ford in San Diego.
Although the changes at McCallan's dealership are small, he is at the leading edge of sweeping retail changes within Ford Motor Co.
In the next decade, Ford will reshape its retail distribution network worldwide. The company envisions creating a network of super-dealers, such as McCallan, devoted to selling only Ford cars and trucks. Ford wants fewer dealers, each selling several of the company's 'family of brands,' generating higher volumes and greater profits.
In December, Ford began walking its talk for McCallan. Ford closed company-owned College Ford in Lemon Grove, Calif., allowing neighboring dealers, such as McCallan, to pick up the business.
It will take years for the scope of the change to be realized as Ford recasts its dealership network point-by-point and market-by-market. But already Ford is:
Using its Premier Automotive Group of luxury brands to pioneer its super-dealer strategy in the United States. Roger Penske's UnitedAuto Group Inc. is building the first PAG luxury super-dealership in Phoenix.
Strengthening existing Ford dealerships by awarding them available franchises or by closing stores, such as College Ford in the San Diego market.
Strengthening individual vehicle brands by requiring separate showrooms for each brand and discouraging dualing with non-Ford makes.
'We want to revolutionize this,' said Wolfgang Reitzle, group vice president of Premier Automotive Group. 'There is a huge opportunity out there. We can learn a lot from the fashion industry. We can learn a lot from Wal-Mart and from people who really are professional retailers. We, the car industry, are not really professional retailers. We traditionally focus on producing these sheet metal boxes, and then we sell them.'
Reitzle made his remarks at a speech at the 2001 Greater Los Angeles Auto Show in January.
Reversing the past
To foster its creation of super-dealers, Ford has reversed a key part of its 98-year-old distribution practices, said Jim Schroer, Ford vice president of global marketing.
When any of the eight Ford brands has an open franchise, the company will try to award the business to a top-performing company dealer. The increased sales volume will strengthen the dealer, Schroer said. Eventually, the single-owner strategy will create a pool of dealers who will retail several of the company's brands, sell more units per store and generate the profits needed to provide superior customer handling, he said.
For example, Joe Drew, owner of Drew Ford in La Mesa, Calif., expects to gain sales and service business following the closure of College Ford.
'It has taken a lot of guts for Ford to do this,' said Drew, who operates the Ford dealership closest to the closed outlet. 'Without a doubt, we will pick up sales. Daily, we are breaking records in our traffic count in the service department and College Ford closing is part of that.
'Our strategy is to continue to expand our location, which is in line with Ford's strategy to build larger, stronger players,' Drew said. 'We are adding service bays, additional vehicle storage, additional parts warehousing and additional collision facilities'
Ford owned College Ford at the time of the closing. The store retailed about 100 new units monthly after more than four decades in operation, Drew said.
In the past, Ford did not actively direct new business to its dealers. In fact, the company discouraged its dealers from acquiring additional franchises. The company tended to award open franchises to experienced dealers of competing makes.
Now, Schroer wants to unwind the dealership networks created under the old policies.
'Today, about half of our distribution system around the world has competitive duals in the showroom,' Schroer said. 'Eventually, I would like to see roughly half of the competitive duals gone. I want separate brand showrooms for Ford Motor Co. brands.'
Schroer takes pains to stress that Ford is not trying to eliminate dealers. The consolidation will occur as franchises come on the market naturally, he said. There is no timetable to reduce the dealer count, he said.
'Where we have an open point come up, and someone decides to exit the business, we would like to see one of our best dealers buy that point out rather than fill it,' Schroer said.
'It is going to take years,' he said. 'It is an evolutionary change.'
What Ford does not envision is awarding multiple franchises to a single dealer who will park Lincolns next to Fords in the showroom.
'Take the word dual. Put an `X' stamp on it. No duals. No duals. No duals,' Schroer said. 'We are encouraging the ownership of our brands by a single owner as long as the showrooms are branded and separate.'
The new policy is Ford's latest drive to make its vehicle design, retail showrooms and advertising exemplify a distinct personality for each of its eight brands.
In practice, Ford's new policy means, for example, that when a Mazda franchise becomes available, a top-performing Ford dealer in the market would likely be awarded the franchise. An estimated 80 percent of Mazda stores are dualed.
'The stores are giving an emphasis to a brand other than Mazda,' Schroer said. 'What we are going to do is facilitate the transfer of ownership of the Mazda franchise to a good Ford Motor Co. dealer'
Some Mazda stores already are housed with other company dealers. About 130 of Mazda's 720 U.S. franchises are owned currently by retailers selling other Ford brands, said Stephen Odell, COO of Mazda North American Operations.
Leading with luxury
In the United States, Ford's luxury brands will be the first to showcase the single-owner concept. Ford's Premier Automotive Group, which manages the company's Volvo, Jaguar, Lincoln, Land Rover and Aston Martin brands, is creating large retailing campuses under a single operator. Within 18 months, 10 such dealerships are expected to open.
'We want to go for so-called common ownership PAG dealers,' Reitzle said. 'What that means is that one dealer has five showrooms for our five brands, all exclusive with exclusive salespeople.'
Lincoln's dealer base is likely to dwindle as the new strategy plays out and the demands and costs of selling the company's luxury vehicles rise.
In late 1999, Lincoln began offering owners of small dealerships an exit strategy, purchasing vehicles and parts and offering financial assistance.
Lincoln declined to say how many dealers have opted to close.
'The majority have been dualed with Ford (brand) and are maintaining the Ford dealership,' said Nancy Carollo, Lincoln spokeswoman. 'They are in rural and farming communities.'
Similarly, for the last 18 months, Ford Division's regional managers have been talking with the estimated 300 dealers who sell fewer than 50 new Ford units annually.
'That is four a month. We offer 13 vehicle lines,' said Jim O'Connor, Ford Division president. 'Because of the revenue opportunity from only four vehicles a month, or less, it is becoming more difficult to compete with the cost of doing business today.'
'We are having a dialogue with them,' said O'Connor. 'There is no gun to their head that says you have to leave.'
'We have been losing about 100 smaller dealers a year,' he said. 'We will probably do 100 again this year. We will leave it up to the dealer.'
Mazda has eliminated about 150 dealerships in the last three years, Odell said. 'I don't see it diminishing much below that in 2001,' he said.
Spending on customers
The Ford Division in the United States and the Ford brand in the United Kingdom are the only two Ford retail channels that generated sufficient volume and profits per store under the old distribution practices, Schroer said.
Except for Ford Division, all Ford brands rank in the middle of the pack in the average number of new vehicles sold per dealership. In 1999, top-ranked Saturn dealers averaged 1,437 new units per dealership; bottom-ranked Oldsmobile dealers only 127 units. Land Rover, Volvo, Lincoln Mercury, Mazda and Jaguar dealers averaged between 435 and 332 new units.
'Most of the other places in the world we set up an individual brand distribution system where the volume is too low for the dealer to make money and delight the customer,' he said. 'That was OK when everybody else did it that way, too.
'Now, you look at Lexus in the United States,' Schroer said. 'They sell roughly the same volume as Lincoln. Lexus sells through roughly 150 stores. We have 1,000. It is very difficult for the Lincoln dealer to make as much money as the Lexus dealer and take care of the customer as well as the Lexus dealer can.'