Ford dealers are the finest automotive retailers on earth, but they overpopulate it.

So says Ford Motor Co. CEO Alan Mulally in discussing the need to thin dealership ranks in the U.S. where there are more than 4,000 Ford dealers as well as about 1,500 Lincoln and 2,500 Mercury dealers.

“Ford dealerships are arguably the finest distribution network in the world,” he tells Ward's during an interview in his office at company headquarters in Dearborn, MI.

But he adds: “We clearly need to continue to consolidate the dealerships to the lower demand because we have overcapacity, especially in the big cities.”

Ford's philosophy is to leave the dealership consolidation to the dealers in the hopes that they will make the necessary adjustments.

“It's a business decision and these are business people, and they want to make the right decision at the right time,” Mulally says. “We talk a lot about it and we share all the data, but it's clearly led by dealers.”

Mulally, who recently completed his first year as Ford's chief executive, got to know lots of dealers during a summer powwow that was so big it was at Ford Field, a football stadium where the Detroit Lions play.

“We had 600-700 dealers a night for three nights,” he says. “The conversation was all about the product line and our consistency of purpose and the importance of dealer leadership.”

Also on the agenda: improving dealership profitability, which is why trimming the number of Ford stores is so important, Mulally says.

Dealers apparently liked what they heard. They gave Mulally standing ovations.

“They love Ford and the want to make sure we're committed to the business, and, boy, are we ever.”