Ford is shooting warning shots and most dealers are ignoring them.

Ford is shooting warning shots and most dealers are ignoring them.?

Currently, because of COVID and the chip shortage, the automotive industry environment has changed dramatically. There has been a perfect storm of change because of low inventories and high demand. Currently, customers are more interested in contactless home buying services as well as electric vehicles. Sadly, a lot of people in the automotive industry still blame politics, environmentalists, customers, the sky, and their uncles for these problems. Electric vehicles used to be laughed at, but now they cry that this change is just a result of recent events, ignoring the fact that the industry has been trying to make this shift for 40 years. Meanwhile, Elon and many others have billions of dollars in their pockets.

As a result of the chip shortage, most manufacturers are looking at their own operations, cutting costs, and managing current resources, while investing in new technologies and making internal and necessary changes. Almost all dealers are relying on "Dealer fees" except for a few very smart dealers that only use this practice for buyers outside their market. Dealers must make money to survive. There is an article I wrote about this (https://www.dhirubhai.net/pulse/stop-selling-advertising-vehicles-ariel-velazquez/), but it is getting out of hand.?

Because of this, Ford gave the first warning shot in an investor’s call (https://www.thedrive.com/news/44172/ford-boss-puts-the-kibosh-on-unreasonable-dealer-markups). The company's CEO, Jim Farley, has made it clear that he will penalize dealers that go beyond what is “reasonable” in pricing vehicles above MSRP. Among those penalties will be a reduction in the number of new F-150 Lightning vehicles. In the call, Farley mentioned that 10% of dealers in the dealer network charge above the MSRP, and he doesn't like it. Moreover, a Barclays analyst reported that the average extra profit per vehicle is $1,850, which amounts to $3.5 billion. Now, let's look at all of this; Farley knows that many on that call are also dealers or investors in dealers. With the current inventory situation, dealers need to price vehicles above MSRP. He's calling for "reasonable" prices, not to completely end the practice. His request will be ignored by most dealers, and the media will have a field day with his words, meaning the message was for consumers. Ford becomes the hero and the dealers that practice this are the villains. Furthermore, the 10% is an extremely low estimate of the practice, and we all know that it is three times larger. The only reason he mentions 10% is so as not to cause panic. They are running the numbers internally to figure out how much money they are not getting, how they can get that money, and the reasons they need that money is to develop electric vehicles.?

Second shot. Splitting the company into two… Most will argue that the Ford family will never allow this to happen since they control the company via special stock and have three board seats. Farley, however, has an interesting case to make to them, that running an Electric Vehicle company and an Internal Combustion Engine company at the same time presents a number of challenges. He also points out that they are losing a lot of money because of this. Personally, I believe a full company split has a low probability of occurring, but it can be split in other ways.??

Farley said in the call.

“But I will go back to something we said, and I’ve said over and over again, which is, running a successful ICE business and the successful BEV business are not the same. The customers are different. We think that go-to-market is going to have to be different…. The rhythm of the business is different – fundamentally different … On the BEV 9 Battery Electric Vehicles) side, this is quite an important topic, because the margins that we want to build in BEV are going to be heavily dependent on a different go-to-market and customer experience. I won’t go into any more than that, but this is quite an important lesson for us of the franchise system, and the way we will manage going forward”?

As he explained, they need a different "Go-To-Market" strategy. It's a clear message to dealers. It has taken manufacturers decades to find a way to get out of the franchise model, and now they have made a good case for it. This is not a casual conversation, and that is why he doesn't go into any detail about it, and now Ford is denying any company split. It is only to test the waters and create a media buzz that he is mentioning this combined with the fact that dealers are charging over MSRP.??

In addition, they will be making changes to the current products while they are still on the market, like Tesla. Ford took $1,000 from the Mach-e last month and plans to build 100 thousand of these vehicles this year. That translates to 100 million dollars for Ford. This type of change would be a challenge with the current franchise model. These changes can only benefit Ford with a direct-to-consumer manufacturing system, not with the current build-to-dealer process.

?Does this mean the franchise system is coming to an end? I don't believe so. I envision a hybrid system similar to DoorDash and physical restaurants. Some customers will decide on a delivery system while others will continue to deal with dealers. In the same way, BEVs won't completely replace ICEs (Internal Combustion Engines). BEVs will not always be the answer, but will definitely become mainstream and ICEs will lose their relevance on the market. In what ways would manufacturers change the relationship with dealers? Can dealers cope with these changes? What are dealers' priorities??

Rivian and Stellantis are now causing Bezos and Farley to battle. Putting further pressure on BEV sales. Rivian is backed by Amazon and Ford, but Bezos announced a partnership with Stelantis. A great deal of progress will be made in the electrification of vans through this venture. The delivery van business will be in for an exciting time.?

#Automotivesales #Ford #Tesla #Amazon #Stelantis #BEV #ICE