Better products and bigger profits are on the agenda for Ford dealers this year.
Dealer profits for 2005 were down 7 percent through October, the most recent period for which data are available, said Tom Addis, who took over as chairman of the Ford National Dealer Council in August. Combined profits for U.S. Ford dealerships in 2005 likely hit a new five-year low.
New products such as the Ford Fusion sedan and a better dealer bonus program for 2006 should help increase dealer profitability this year, said Addis, the 65-year-old dealer principal of Lake City Ford in Coeur d'Alene, Idaho.
Addis spoke with Staff Reporter Amy Wilson.
What are the top three priorities for the council this year?
One of them, of course, is dealer profitability. Another one is product - good, new, timely, exciting product. And, of course, quality is always an ongoing issue with us. The issues with the 6.0-liter (PowerStroke diesel engine) have brought quality back into the limelight.
What is Ford doing about that?
We're going to fix it. It's a top priority at Ford. There have been a lot of fixes that have come out on it, and they all improve it. Hopefully what they're doing right now will get it solved once and for all.
How did dealer profitability change in 2005?
It's not as bad as you might think. Dealer profits through October were down in the neighborhood of 7 percent compared with the year before. Although any slippage is not acceptable, that's certainly not as bad as I would have anticipated.
That is an improvement from where you were the first half of the year when Ford dealer profits were down 16 percent.
Yeah. You've got to remember that Family Plan pricing did a lot of business and probably pulled ahead a lot of business.
How did the Family Plan, or employee pricing program, affect dealer profitability?
It seems that depending on the dealership, its size, location and competition, it had a vastly different influence.
That's for sure. If a dealer was very, very low on inventory, he obviously didn't do very well. If he was high inventory, he did pretty darn well. In some cases the grosses were lower. In some cases, they were right in there. In some cases they were even higher. First of all, we didn't have the giant carryover of '05 models that we were headed for. Secondly, our floorplan bills went way, way down. So you put it all together there, it worked pretty well.
How did the new 2005 bonus structure affect dealer profitability?
Obviously, there's less payout to the dealers. But I have to remind you that they had a phaseout plan. Blue Oval was always scheduled to be a five-year program. The average payout under Blue Oval was around $340 per unit. And the Accelerated Sales Challenge probably gave dealers about half of that.
What is your opinion of Mark Fields, Ford's president of the Americas?
He's leading a new way forward. He's remarkably well-versed on what the issues are today for being back over here only a short time. We felt very energized.
What was the high point of 2005?
It probably sounds a little Pollyannaish, but it's the attention that Ford pays to the dealer council. They spend time, they analyze, they pay respect to what we have to say. We got some internal things done as far as some of our plan business (A, Z, D, X discount plans) that made it an awful lot easier for Ford dealers and maybe a little more profitable. They put the 45-day finance charge in the plan price. They put an additional $100 in for (dealer advertising fund) generations. They put an administrative fee in there. All the changes resulted in over $100 million in additional dealer profits.
What was the low point of 2005?
The low point of 2005 was the sales performance. We just didn't sell as many as we wanted to. And at the end of the day, that's what we're all here for. We got more than our share of the industry's malaise. If that
wasn't the case, we wouldn't have a turnaround/restructuring operation going on now.
Are the prospects better for 2006? Or will it be more of a transition year?
I think 2006 will be a transition year. It will be another tough year, but I think we'll see some sunshine at the end of '06 and going into '07.
Do you look for higher sales and higher market share in 2006?
Yes to both.
From a dealer profitability standpoint, will 2005 be the bottom of the curve?
Yes, I think so. We've got some things going. The Mustang and this Fusion. I honestly feel that that Fusion will be to the Ford dealers today what the '86 Taurus was. (Our customers) love it. They can't believe it's a domestic car. They think it's a fancy foreign car.
Are you seeing enough pizazz in design now?
On what we have coming, yes. Mustang and Fusion (are the start of that).
What products are slow?
Do you want to buy a Freestar? It's a shame. That is a great car in terms of the evolution from the Windstar to the Freestar. But nobody knows it's different.
How do you feel about the 2007 Ford Edge?
It will be a tremendous help. It puts us in a segment where we really aren't playing now.
Are Ford dealers worried about the value of the franchise, their blue sky, falling?
I think that would be a natural byproduct of not only a down market but your share slipping. That shouldn't surprise anybody. But I have all the confidence in the world in the Ford brand.
I've heard that more dealers are actively looking for exit opportunities, putting their stores up for sale through brokers or even privately.
When times do get tough and business is down, you see a lot of stores come up for sale.
You get a lot of guys, especially in my age group, that say, "You know, I'm just tired of fighting this deal." And they put them up for sale. So I don't know if I'd read too much into that.
Is the Ford brand overdealered?
Compared to General Motors, or compared to Toyota? Compared to Toyota, we're certainly overdealered.
I wouldn't compare it to either GM or Toyota. Look at the level of sales and market share held by the Ford brand and how it can be divided among Ford-brand dealers.
Well, with that premise, of course, you'd have to say it's overdealered. But when you say overdealered, that would be for the current situation. If you thought, we'd like to be more like Toyota or Saturn and have a lot fewer dealers, well, how are you going to get there?
Does the council talk about that?
Oh, a bunch of us guys do, not as a formal topic. Then someone says, "Well, you want to give up yours?"
What is the number one thing the factory can do to help the dealers?
Continue to bring us timely, exciting, quality products.
How important are hybrid vehicles?
Don't know yet.
What kind of response have you gotten to the Escape Hybrid?
Fair. (Look at) how many years you have to drive one to get the premium for the hybrid technology back. There's a certain amount of people who buy one because they were the first on their block to recycle their trash, or whatever.
And I'm not knocking anybody, but there's a certain thing of "Hey, I'm an environmentalist. I care for the Earth. I'm going to drive a hybrid vehicle."
How many of your customers ask about hybrids?
Well, not too many. We're up here in the Northwest, and they want to know how big an engine they can get in their F-250.
Do dealers in general across the country want to get more hybrids?
I think so, yes.
Have you seen a decline in customers who want fuel-hungry vehicles?
No, it's really kind of interesting: If you go back to the Family Plan in July and August, the sales numbers were really impressive. At the same time, we were getting all these runups in fuel prices.
Now every dealer what they sold out of first were the most fuel-inefficient line they have, Super Duty trucks. Around here, diesel fuel is 30 or 40 cents a gallon more than the more highly refined gasoline. The diesel left first. So I don't know what that tells you.
Have you heard from colleagues in more urban markets that they are seeing a shift toward more fuel-efficient vehicles?
Yeah. A lot of them feel that because of fuel prices, their sales are off.
How is Ford-brand advertising working?
A lot of it has been real, real good (such as) the Mustang stuff. I suppose there has to be some kind of connection between the brand's advertising and share slippage.
Does the dealer body have much of a voice in the brand's advertising?
Not a lot.
Do you need more?
What are you going to do about that?
We will have stronger discussions through our marketing committee.
One of the things I hear Ford dealers say they're unhappy about is always following GM in terms of incentive strategy and even the advertising that goes along with it.
Yeah, that's kind of a tough one. And I feel the same way. We don't want to follow anybody, but let's go back to the employee pricing thing. My God, nobody liked it.
But when you saw the numbers, what did they get: Nine points of share in June? What are you going to do? I don't see where we had a choice.