There is life after Mercury, according the Ford of Canada Ltd. experience.

Ford Motor Co. pulled the plug on its premium brand in the U.S. this week, prompting speculation about the decision’s impact. But there is a precedent: Canada’s Mercury dealers were axed in 1999.

Bobbie Gaunt, then-president of Ford’s Canadian operations, said the action was a wager on Ford and Lincoln and not a bet against Mercury – the same reason used to explain the U.S. move.

Canadian dealers say killing the brand was beneficial, but sales numbers suggest otherwise.

When Ford broke the bad news to Canada’s Mercury dealers, they were as unsettled as their American counterparts were this week. The auto maker rubbed salt in the wound by announcing Canada’s Lincoln-Mercury dealers would become Ford-Lincoln outlets, which created new competition for Ford-only stores.

“There was a class-action lawsuit that included all of the Mercury dealers and any Ford dealer that was within 9 miles (15 km) of a Mercury dealer,” John Chisholm, president of Rose City Ford Sales Ltd. in Windsor, ON, Canada, tells Ward’s.

The suit, levied against the auto maker, involved more than 100 dealers who cited a previous agreement with Ford that stated a new Blue Oval store could not be established within 9 miles of an existing franchise unless a study determined the move was warranted.

Ford settled for C$50 million ($48 million). Says Chisolm: “You had some Mercury dealers that wanted out, so there were some happy endings.”

Following the payout, about 80 dealers closed shop. A similar outcome is expected in the U.S., although more dealers are likely to be shuttered because there are more Mercury outlets here than there was in Canada.

Ford will work to link displaced dealers with existing Blue Oval franchises. Where that is not feasible, the auto maker will “compensate them fairly and reasonably,” Mark Fields, president-The Americas, said this week.

While Ford is mum on the exact amount of compensation, various reports indicate the auto maker has sent documents to Mercury dealers informing them the marque officially will be discontinued Dec. 31.

Ford will base its compensation on the number of vehicles each dealership sold in 2007-2009, excluding large fleet orders, the paperwork indicates.

Compensation ranges from $1,500 per vehicle for stores where Mercury represented 25% or less of a dealer’s total business to $2,500 per vehicle in cases where Mercury accounted for at least 76% of volume.

Rose City always has been a Ford-exclusive franchise, but Chisholm says his business benefited from Mercury’s elimination.

“Our market share went up,” he says. “The reason they did it was simple, the juice was not worth the squeeze to have the Mercury franchise here.”

Harold Hall, president of Lambton Ford Lincoln in Sarnia, ON, Canada, sold Ford, Mercury and Lincoln vehicles, and says his total volume did not suffer following the discontinuation of Mercury.

“At the time in Canada, the Mercury franchise was represented by the Grand Marquis, Sable, Cougar, and Mystique (cars),” Hall says in an email to Ward’s. “In Canada, no trucks were marketed under the Mercury nameplate.”

But the overall impact on Ford of Canada’s sales was noticeable.

In 2000, the first full year after the plug was pulled on Mercury, the Ford’s light-vehicle Canadian market share remained a healthy 18.0% (excluding its foreign brands), according to Ward’s data. But that was a year that saw 5,950 Mercury deliveries as excess stock sold off.

In 2001, Mercury sales dwindled to 3,034, and Ford’s share slid to 15.3%.

By 2003, Ford’s share had dropped to 14.5%, with Mercury selling 1,375 units, mostly consisting of Grand Marquis fullsize sedan units, the one model that remained on sale in Canada until recently.

Ford’s Canadian market share never again reached its 2000 level. In 2005 it dropped to (12.9%), rebounding slightly to 13.7% in 2006.

Its share slipped to 12.9% in 2007 and 12.4% in 2008, before rebounding to 14.5% in 2009. This year, Ford’s share has climbed further to 15.3%, but remains well short of the 18.0% mark in 2000.

Whether a similar pattern occurs in the U.S. remains to be seen, says Dave Cole, chairman of the Center for Automotive Research in Ann Arbor, MI.

“That was a mini-test,” Cole says of Mercury’s Canadian wind-down. “This is the maxi-test; the one that really counts.”

However, a key difference will be the addition of new Lincoln vehicles. The auto maker has promised to develop a C-segment vehicle for the luxury brand and a Lincoln-exclusive engine.

Ford says it will halt Mercury production in the fourth quarter.

bpope@wardsauto.com