Calif. dealers to Ford: Don't punish us for not building separate Lincoln stores

November 21, 2018 12:00 AM

The California New Car Dealers Association is asking Ford Motor Co. to immediately cease anti-dualing policies in California and to halt plans to withhold part of dealer margin for stores that don't divide facilities.

The association also called on the automaker to stop threats to cut off co-op payments for dual stores that don't comply with requests by Ford and Lincoln to create separate trade names.

Ford's Lincoln brand this year asked its dealers in the top 30 U.S. luxury markets to construct standalone stores, citing oftentimes higher sales figures for those stores and surveys that indicate luxury customers prefer buying in their own dedicated space.

In a Nov. 20 letter to Ford CEO Jim Hackett, association President Brian Maas says Ford and Lincoln dealer members have "serious concerns" about a policy they say financially hurts dealers who operate dual Ford-Lincoln stores. The association, which claims anti-dualing policies violate aspects of California franchise laws, seeks a response from Hackett by Dec. 8.

In April this year, Ford and Lincoln sent a document to dealers stating dual dealers must have "two brand exclusive trade names [i.e. Youngstown Ford and Youngstown Lincoln]," according to the letter. Dealers also have received communication that indicates if they don't comply with the name requirements, they won't receive a co-op reimbursement from Ford, which is about $100,000 a year per dealership, the letter says.

And in August, dealers received another communication about the Lincoln Commitment Program that said Ford-Lincoln would withhold 3.5 percent of a dealer's margin if they operate a dual facility, according to the letter.

"By withholding 3.5 percent of a dealer's margin, Ford/Lincoln penalizes each dealer that operates a dual Ford-Lincoln facility hundreds of thousands of dollars per year," Maas wrote in the letter. "This could push many otherwise profitable dealers into the red."

Maas said the margin policy is unfair to dual dealers. He told Automotive News that dealers have told him the policies are slated to go into effect around Jan. 1.

Lincoln response

"As part of its transformation plan, Lincoln is making changes to the 2019 Lincoln Commitment Program, asking dealers in the key luxury markets to shift to brand exclusive facilities," Lincoln said in an e-mailed statement.

"This change is driven by research that show nearly 80 percent of luxury clients prefer to shop for luxury vehicles in a brand exclusive environment and is designed to enhance the luxury client experience and drive growth for Lincoln. The National Lincoln Dealer Council has been included in these discussions over the past 12+ months, and have provided their support."

But the California association calls the policies "egregious" following past encouragement for dealers to spend millions of dollars to build dual Ford-Lincoln stores and because Lincoln's market share in California at 0.3 percent fails to justify constructing a separate facility, given low sales figures and the high cost of land in the state.

California law restricts automakers from prohibiting dealers from maintaining separate sales and service operations for multiple brands at the same facility, prohibits automakers from requiring dealers to build standalone stores if doing so would be unreasonable given all existing circumstances including economic conditions and prohibits manufacturers from "coercing dealers into engaging in acts that are prejudicial to their dealers by threatening to terminate agreements with their dealers," according to the letter.

"It is plainly apparent that Ford/Lincoln is implementing these policies to coerce dealers into separating their dualed Ford-Lincoln dealerships," Maas wrote in the letter.

It says that of the about 38 Lincoln dealers in California, about 33 operate dual Ford-Lincoln dealerships, meaning an anti-dualing policy affects most California Lincoln dealers.

Changes for top markets

Of Lincoln's about 150 dealers in the top 30 U.S. luxury markets, nearly half have built or have started to build exclusive stores on their own.

It has asked the remaining 78 dualed dealerships in the top luxury markets to commit by July 2019 to build a standalone store that would be completed by July 2021.

Maas said he did not know if other associations or dealers have challenged the policies, though he suspects some will. He would not speculate on if the association will seek legal action on the matters, but said the association's next moves will depend on the response from Ford and Lincoln.