Which Road Goes Back To Dealer Profits?

As Ford Motor Co. puts the finishing touches on a restructuring strategy, dealers look for signs that will restore profits to pre-2004 levels.

Ford dealers watched as profits at their stores declined in 2004 and 2005.

Profitability is at the top of the Ford dealer council's list of concerns.

Dealers enjoyed a brief summer respite as profits soared to near-record levels spurred by Ford's discount plan of offering consumers employee discount prices.

“Many of our dealers made a lot of money in that July-August time fame,” Ford President and COO Jim Padilla says in an interview at company headquarters in Dearborn.

The joy was short-lived, however, as the company reported a $284 million loss in the third quarter as sales plummeted 22.7% and market share declined by a percentage point.

Dealers in regions that are dependent on SUV and truck sales claim profits dropped nearly 50% at their stores during the third quarter.

While Padilla says it is important for Ford to have profitable dealers, “it's tough for us too. We're shutting down factories.”

Padilla says strong dealers have robust service and finance and insurance operations beyond new-vehicle sales.

“Have you seen a dealership balance sheet?” he asks. “Seventy-five percent of a good dealership's profitability comes from its finance, parts and service departments.”

Dealer profitability is a high priority for the auto maker, says Dan Hay, dealer principal at Jim Burke Ford in Bakersfield, CA, and outgoing president of Ford's national dealer council.

“Of course, we don't always agree on how to get there,” he adds.

Although truck and SUV sales were down as much as 28% through October, Ford has seen some healthy numbers from the launches of the all-new Ford Fusion, Lincoln Zephyr and Mercury Milan midsize sedans.

Jerry Reynolds, who built his Prestige Ford dealership in suburban Dallas around the pickup truck and SUV market, says he never thought he would see the day when passenger vehicles were the bright spot at his stores.

Something he says he's learned lately is “never to say this is the worst it can get.”