Perth, in western Australia, is a stylish, modern city of 1.5 million people.
It is the most remote capital city in the world, closer to Singapore than Sydney but a long way from either.
The city's isolation makes it a perfect test market for Ford Motor Co. The world's second-largest automaker is trying to reinvent its dealerships.
Two years ago, the automaker purchased stores from six Perth dealers and formed a huge dealership. Then it sold a share of the dealership network - called a retail joint venture - back to the original dealers, who now help manage it.
Ford thinks it can cut costs through economies of scale, eliminate unprofitable stores and improve customer service. The six separate businesses now are managed as a single company. Each store pushes to compete with rivals such as Toyota Motor Corp. and Holden Ltd. rather than each other.
The retail joint venture is the product of Ford's struggle to improve customer satisfaction. Like other automakers, Ford is frustrated that customer service varies dramatically from dealership to dealership. Company President Jac Nasser has been preoccupied with improving customer satisfaction ever since he burst into Ford of Europe in 1993. The man who once said, 'People aspire to get OUT of a Ford' (into something better) has launched a major effort to improve dealerships. In markets as varied as Germany, the United Kingdom, the United States, Australia and New Zealand, Ford has launched variations of its retail joint venture concept.
Despite Ford's enthusiasm, it has created tension among Ford dealers. Look at the contrasting fortunes of Brian Hayward and Colin Houghton.
Hayward sold Centre Ford, a mid-sized dealership in central Perth, to Ford. Now he is the CEO of the retail joint venture. He candidly admits that he welcomed Ford's buyout. 'The money was heartwarming,' said Hayward, a veteran of 20 years of retailing in Canada and Australia. 'If I hadn't taken it, I don't know where I would be today. We were bleeding badly.'
Other sources in Perth say Centre Ford was close to bankruptcy at the time. Hayward admits: 'We were in deep trouble.'
Despite Hayward's enthusiasm, three other dealers did not join Ford's venture. Across town from Hayward's operation is Houghton Ford, where owner Colin Houghton says his business is fine as it is.
Houghton, who has a moustache and is tall and slim, has a military bearing and a strong sense of principle. He dislikes the idea that a dealer accustomed to running his business should find himself working for Ford instead. 'Unless a dealer has his life and business, he doesn't have the same level of commitment,' Houghton said.
He stubbornly remains outside the collective. 'Ford is pushing a model which doesn't seem to work anywhere,' he said. With some bitterness, Houghton claims there was a 'crowd of favored sons' who created the venture in Perth.
But Hayward does not believe that Ford is marginalizing its dealers. 'They are recognizing they don't know the retail business and we do, so they have put up the money.'
There is a clear contrast between Hayward, a plump half-Canadian, and Houghton. Their dealerships differ, too. Centre Ford is on a new site near the middle of town, on a street full of other dealerships.
Houghton runs a store farther out on a shopping street, in a cramped location with inadequate parking. The dealership has occupied this site since 1945. Houghton's showroom shows little evidence of official Ford branding, but a string of customer satisfaction awards testify that the automaker can tolerate dissenters. The contrasts resemble those between retail joint ventures in Perth and in the United States, where the ventures started.
Born in Tulsa
Ford's first retail joint venture, called Auto Collection in the United States, was in Tulsa, Oklahoma. Overnight, workers tore down the dealership names and replaced them with signs saying 'Auto Collection.' In place of the familiar dealership was a brand unknown to and not trusted by the consumer. It was a mistake for Ford to create a new retail brand, said David Blackhall, director of international operations for FIECO, which handles Ford's retail joint ventures. 'It could cost the equivalent of the gross national product of a small Asian nation for 20 years. That was a mistake.'
The U.S. strategy did not work for several reasons. The move generated enormous ill will among dealers, who used their political influence to block Ford's plans. Some states passed laws blocking automakers from buying dealerships. Meanwhile, Ford's optimistic forecasts of increased efficiency and higher profits did not occur.
Ford, which had envisioned Auto Collections across the United States, pulled back. It no longer plans to turn its Auto Collections into a publicly owned company. 'I think everybody in the world would agree we are not going to do that,' says Blackhall.
Outside the United States, retail joint ventures are being set up in the United Kingdom, Germany, New Zealand and Australia. In the United Kingdom, one group already controls 20 percent of sales volume. In Australia, these giant dealerships account for 27 percent of nationwide Ford sales. Once all of the ventures are organized, retail joint ventures will account for 50 percent of sales.
'This is not experimental,' said FIECO Australia director Keith Williamson. 'This is the way the distribution network is going to operate in Australia.' Indeed, Ford has introduced the concept in Sydney, with more ventures planned for Melbourne and Australia's other state capitals.
To save money and improve service, Williamson wants to separate car repairs from new-car sales. The dealerships can set up other repair shops for customers who want service close to home. That would allow the dealership to make better use of expensive properties in downtown areas. This fits Nasser's recent statement that dealers should be consumer advisers, emphasizing services such as car rental, finance and insurance. If so, retail joint ventures could work closely with other Ford operations such as Ford Motor Credit Co., Hertz Corp. and Kwik-Fit Group.
Another aim of the retail joint venture is to make sure dealers stay loyal to Ford. In areas such as Perth, where the automaker has struggled, Ford dealerships sought new franchises. In fact, Ford dealerships 'became a mother ship for a Kia or Daewoo or Hyundai to attach itself like a leech,' says Williamson.
In Perth, Hayward reckons the venture already is benefiting from extra professionalism. The retail joint venture now has a finance boss recruited from the state horse-racing controller. That's a long way from the dealer's public image of poorly qualified salesmen wearing garish jackets.
The retail joint venture also allows Ford to trim its network of dealerships. Every Ford executive involved with them uses the word 'rationalization.' Ford Australia President Geoff Polites thinks Australia has too many Ford dealers. Only the larger, more efficient dealers will survive, he says. After announcing the retail joint venture in Sydney - the biggest Ford dealership in the world - Polites said the plan allows an exit strategy for dealers.
Naturally, dissenters such as Houghton are not ready to exit. In Perth, independent dealers have undercut the retail joint ventures on price. But Blackhall says the independents cannot survive a price war indefinitely. The retail joint ventures should be able to save money by sharing parts inventories and other costs among the stores. And if the giant dealerships improve customer service, consumers will be less likely to save a few dollars by choosing an outside dealer. An independent retailer may beat them on the occasional deal from time to time. 'But it will hurt him like hell to try to beat us on every one all the time,' Blackhall said.
Rival automakers are closely watching Ford's retail venture. One senior company executive predicts other automakers will follow Ford's example. 'We are convinced we are on the right track,' said Lewis Booth, Ford's president of Asia-Pacific and Africa operations. 'Long-term, other people will do something similar.'
Judging from Australia, he is off the mark. For example, Toyota Motor Corp. is spending $40 million to build a company-owned outlet in Sydney. This store will compete with Toyota's own dealers. Meanwhile, Subaru is promoting direct sales. And at Holden, Chairman Peter Hanenberger said, 'We are following Ford's development very closely, but our philosophy is totally different. We will never have any kind of equity' in dealerships.
But Ford is a family, not a franchise. The company wants to have a common owner in any city for its variety of brands. Thus a Ford dealer also might operate franchises for Land Rover, Jaguar, Volvo, Mazda, Aston Martin or Lincoln. The search for the best retailer in each market 'is being driven pretty hard now from the top of the company,' Blackhall said.
Despite the controversy, Hayward of Centre Ford says the dealership in Perth is working. But patience is needed, he cautioned. In the vital compact-car segment, Ford's Laser - a derivative of a Mazda car - is perceived as a vehicle with no character. Not surprisingly, Ford's market share in Western Australia has slipped to just 13 percent. But Hayward's dealership is starting to benefit from economies of scale. By sharing vehicles and parts, the six outlets have cut their inventory to 200,000 parts, down from 1.4 million. Hayward is encouraged. 'I don't expect it to help us sell more cars - at least not yet. But this is the future of retailing.'
E-mail writer John Boley at [email protected]