DETROIT (Bloomberg) -- Ford Motor Co., seeking to hit year-end sales goals, rolled out a bonus program that offers dealers a cash bounty for meeting sales targets that some retailers criticize for cheapening the brand.
Such dealer-bonus programs, often called stair-step incentives, involve Ford paying dealers more cash per model as they cross sales thresholds. The Volume Growth Bonus Program, which began Nov. 1 and runs through Jan. 2, offers dealers payments of $100 to $600 per car sold and is available on C-Max, Fiesta, Focus, Fusion and Escape models, according to a Nov. 1 Ford memo to dealers obtained by Bloomberg News.
The lure of those bonus payments can encourage dealers to sell cars at rock-bottom prices and offer generous trade-ins because they know any money lost on the deal can be made up from the automaker’s program. While it may reduce market-share losses, it can be a costly way of doing business that can depress profits and lower resale values on models that have been sold at steep discounts. It also can upset customers who miss out on a generous deal.
“It cheapens the product and it’s just a doggone shame,” said Jack Kain, a Ford dealer in London, Ky. “If you look at our numbers in October, they weren’t competitive. So they feel like they’ve got to do something this drastic to change the picture.”
Ford’s U.S. car and truck sales fell 1.8 percent last month and its market share has declined to 15.1 percent so far this year, from 16 percent last year. Total U.S. auto sales rose 6.1 percent to 1.28 million in October.
CEO Mark Fields has said sales and profits would decline this year as Ford converted two factories to produce an aluminum-bodied version of the F-150 pickup, its top-selling model. While Ford began building the new F-150 at a Michigan factory last month, the automaker has said it won’t reach full production until 2015’s second quarter.
The dealer bonus program is not a stair-step incentive, Erich Merkle, Ford’s sales analyst, said in an interview.
“We call it a volume-based growth program,” Merkle said. “We went to great lengths to address many of the concerns and we modified the program.”
Merkle said he could not detail those modifications because they were crafted by marketing executives who weren’t available. He said it took “months” to develop the incentive program with dealers and that it wasn’t a “knee-jerk reaction” to lower sales.
“We worked with our dealers, including our national dealer council, to make sure the program was structured appropriately so that it would be mutually beneficial for us, our dealers and our customers,” Merkle said. “The intent was to produce a beneficial outcome from a sales perspective.”
A call to Beau Smith, chairman of Ford’s National Dealer Council, was not immediately returned. Texas Ford dealer Charles Gilchrist, a member of the council, declined to comment, saying, “I’m not familiar with the specifics of the program.”
Kain, Kentucky’s representative for the National Automobile Dealers Association, said he will work to convince Ford to discontinue the program.
“Now that the Ford dealers are under the gun, we will certainly not be in favor of this,” Kain said. “It’s not a fair program, especially for the small dealer that is near a large market, like so many of us are.”
Large dealers, with vast inventory, can more quickly work up to the $600 per-car bonus by selling a high volume of models at deep discounts that small dealers can’t match, Kain said.
“Big dealers can sell those cars at a very low price -- a price that I can’t afford -- to get to the point where they get to make the big bonus bucks,” Kain said. “That confuses my customer, who is troubled that I cannot meet prices that are $1,000 cheaper 10 miles down the road.”
In Ford’s new program, dealers receive a $100 per car bonus for achieving 60 percent to 79.99 percent of a sales target, $200 per car for reaching 80 percent to 99.99 percent of the goal, $400 per car for making 100 percent to 109.99 percent of the goal and $600 per car for selling 110 percent or more above the goal, according to the memo.
The memo stipulates that the bonus payments “will be paid to the dealer and cannot be passed to the customer.”
As U.S. gasoline prices have fallen below $3 a gallon, Ford’s small-car sales have plunged. Sales of the C-Max hybrid are down 23 percent this year, while the Fiesta subcompact is off 10 percent and the Focus compact has declined 7 percent.
However, Ford’s Fusion family car is on a record pace, with sales up 6 percent this year to 263,431 models sold through October. Sales are up 1.8 percent for the Escape small
SUV, which had 255,081 deliveries through October.
Ford included all those models in the bonus program because they are part of a vehicle group it calls “the super segment,” Merkle said.
“This is not intended to just target vehicles that are down in sales,” Merkle said. “It should provide our dealers a little more flexibility to work with our customers.”