At first glance, cutting some 600 dealerships fromMotor Co.’s 4,300 U.S. stores doesn’t seem that complicated.
But taking into account some franchises have been in dealers’ families for decades and are the primary source of their livelihood, the task takes on a new degree of difficulty.
Additionally,appears reluctant to pay dealers to shutter their stores. Rather, it is urging them to close on their own or merge with another outlet.
In theory, that plan would be best for Ford. In reality, however, it’s going to take more than gentle persuasion from the brass in Dearborn for many dealers to call it quits.
Although no Ford representative will confirm it, there are reports circulating the auto maker may be prepared to pony up as much as $300,000 to dealers willing to walk away.
If that figure is accurate, it’s not enough to persuade dealers to leave their businesses, some in the industry say.
If anything, it’s just icing on the cake of a much more lucrative deal, says Jack Kain, who owns two Ford stores in Kentucky and is a former chairman of the National Automobile Dealers Assn.
“In some cases, $300,000 will make a deal,” he says. “But it won’t be the whole package. It won’t be just Ford saying to close shop.”
Rather than offering straight-up buyouts, Kain says he expects Ford to instigate and mediate mergers between dealers, as a less aggressive approach to thinning dealership ranks.
Ford has said many of its dealers are open to the idea of reducing their numbers in order to boost profitability. While Kain largely agrees with this assessment, he says, ultimately, it is the dealer’s decision whether to close shop and not Ford’s.
Although there’s no clear-cut financial reason for Ford to close dealerships, there is plenty of incentive to do so, says David Cole, chairman of the Center for Automotive Research in Ann Arbor, MI.
“It’s very important for any company to have a profitable dealer body, and right now at Ford and other (auto makers), it’s too large,” Cole says.
“The primary benefit is to have fewer dealers with larger territories, because they’re less competitive, generally more profitable and have more money for investment (in the dealership) and advertising. The dealer is the company as far as the customer is concerned.”
Al Giombetti, executive vice president and president of Lincoln Mercury, agrees with Cole. “A profitable dealer network is a competitive advantage,” he says.
Giombetti is quick to point out any dealership closures will be voluntary, and Ford will not take a heavy-handed approach. He also stresses the need for privacy during dealership negotiations.
“This process is strictly voluntary,” he says. “We will work privately with our dealers to deliver plans to reconfigure our representation where needed. If there isn’t an opportunity for adequate levels of throughput, we will encourage consolidation rather than replacing a dealer.”
Giombetti declines to provide an official timeline for dealership consolidation, but says, “It will likely take several years.”
However, Ford may not to have make a special effort to downsize its dealer footprint, Kain says. Rather, natural selection likely will get the job done.
“Over the next three to five years, this (downsizing) will take care of itself, because people can’t live without making a profit,” he says. “A lot of Ford and other domestic dealers are having a bit of trouble right now. It’s survival of the fittest.”