NEW YORK –Motor Co. top executives say they are taking a hands-off, consultative approach to impending reductions in dealership ranks.
The auto maker is offering advice to dealers but not issuing mandates to shutter stores, say CEO Alan Mulally and Mark Fields, president-the Americas, during a meeting covering a range of issues with journalists at the New York International Auto Show here.
“There is an overcapacity in our distribution network and the need to consolidate (dealerships), because it is important that they are profitable,” Mulally says. “You will see them continue to figure out how to consolidate (in a way) that makes sense for them and us.
It’s a matter of working together, thechief says, noting dealers “are dynamite business people. But remember, even though we have a close working relationship with our dealers, they are independent. They are all trying to figure out the right thing to do.”
Mulally says Ford is “over-dealered” in several large metropolitan markets, where too many Ford dealers “are competing against each other, rather than against the competition.”
He sees dealers buying out other dealers as one of the best ways to consolidate retail operations. But the auto maker has no grand plan for eliminating dealerships, always a sensitive issue on the retail side of the business.
“We don’t have a room in the basement of the world headquarters where we are planning numbers, but we do have discussions with dealers,” Fields says. “We’re not going to force dealers to do anything. The facts will set you free. That’s the starting point of discussions.”
Fields describes Ford’s relations with its retailers as open, respectful and business-like.
“Relations with dealers always tend to be correlated to dealer profit,” he says. “Our dealers’ profits are down. Dealers want more profitability. They want to see hit vehicles. There is an old saying that product is everything. A close second is a profitable distribution network.”
As a part of being profitable, says Mulally, dealers don’t want “inventory shoved down their throats.” That happens when too many factories make too many vehicles that consumers won’t buy without big incentives and deep discounts.
“Making cars people don’t want and forcing them on (dealers) is a death spiral,” he says.
Trimming the dealership ranks is part of a massive Ford restructuring that includes a one-third reduction of the workforce and widespread plant closings to stop production excesses.
Such slashing has caused “tremendous upheaval,” Mulally says, “but it is the right thing to do” for the future health of the company.
Fields says Ford wants to trim personnel ranks to get in fighting shape, but not overburden those who remain. “We don’t want people dropping in the hallways,” he says.
Ford is spending a lot of time “to make sure engineers are working and not meeting,” says Derrick Kuzak, Ford’s group vice president-global product development.
Despite the retrenchments, “this is an exhilarating time to be with Ford” for employees who remain, because the company has a strong future, Mulally says.
The Ford executives also discussed upcoming contract talks with the United Auto Workers union. Ford is sharing financial data with the UAW, Mulally says. “I couldn’t be more pleased with (union) talks about improving our competitiveness.”
He says there are “unlimited combinations” to reach a competitive structure. “That is why you negotiate. There is a sweet spot for everyone.” He also says UAW President Ron Gettlefinger is “trying to stay balanced.”
Regarding gasoline prices, Fields says they are “inching up,” not spiking like they did earlier when they seemingly sparked consumer interest in smaller, fuel-efficient vehicles.
“In talking to dealers, I’m not hearing the same things as when gas spiked to $3 a gallon,” he says. “Such as, ‘People aren’t buying trucks and SUVs because of gas prices.’”
Fields says fullsize SUV sales are down “a bit” but expects that to change with the introduction of new models. And although F-Series sales are down, they are “where we expect them to be.”
Nor is Fields overly concerned about the redesignedTundra stealing fullsize pickup truck sales from Ford. “In cars, we gave people a reason to go to the competition,” he says. “In trucks, we haven’t.”
Meanwhile, Kuzak says diesel engines are not likely for Ford passenger cars in the U.S., although diesels “have a strong role in our trucks.” He says European car customers “learned to love diesels because of the low-end torque.”
Ford is progressing with hybrid-electric vehicles, however, particularly with the Fusion sedan. “But we realize we can’t put all our eggs in one basket,” Kuzak says.
“A lot of people believe synthetic fuels are the way to go, but we don’t know what will be the (fuel) technology of choice,” Mulally says, addressing alternative fuels.
“We are working on all combinations. The important thing is that we are working on it. We’ve stopped arguing and decided what we’re going to do for our precious Earth.”
But a more immediate concern is the country’s housing slump and its effect on vehicle sales. “It’s about what we expected,” says Fields, citing slow housing construction starts as a reason truck sales are off.
“The truck-housing correlation is stronger than anything else,” he says. “Although housing values are down, we haven’t seen any customers saying, ‘Oh gosh, the equity in my house has dropped 20%, so I’m not going to buy a car.’ The real warning is if the subprime issues bleed over to other areas.”