Thursday, April 05, 2007

Ford to cut US dealer network

Ford to cut US dealer network
By Bernard Simon in New York
Copyright The Financial Times Limited 2007
Published: April 5 2007 03:00 | Last updated: April 5 2007 03:00

Ford Motor is breaking with tradition by shrinking its US dealer network in a bid to improve the financial health of the remaining distributors as the Detroit carmaker faces up to its shrinking market share.

The planned cuts will aim to reduce the size of the network by about 15 per cent, or 600 outlets. The move marks a departure from Ford's philosophy for most of its 103-year history of seeking to boost sales by increasing the number of dealers.

"The real issue is dealer profitability. It's really important that they're profitable," said Alan Mulally, who took over as Fordchief executive last September.

Mark Fields, head of Ford's North American operations added: "We do have too much capacity, and we're going to work with them collaboratively to bring that down."

Ford has allowed its network to shrink modestly in recent years but is planning to target a bigger cut. At the end of 2006 it had 4,277 US dealers, a drop of 3 per cent on a year earlier, against a fall of 8 per cent in the number of vehicles sold.

By contrast, Toyota, whose US sales are expected to overtake Ford this year, has only 1,500 US dealers, including its luxury Lexus brand.

Ford's two Detroit-based rivals, General Motors and Chrysler, are also shrinking their dealer networks.

Ford's market share has slid from 25 per cent in the mid-1990s to 16.4 per cent in the first three months of this year. Dealers' woes have recently been exacerbated by the shift from sport utility vehicles and pick-up trucks to lower-margin passenger cars.

Ford dealers have become increasingly vocal in complaining about their deteriorating financial health. Those who sell only the upscale Lincoln and Mercury brands are under the heaviest pressure.

The problem is most acute in urban areas where dealers in close proximity end up competing not only against rival carmakers but among themselves. One consequence is lower trade-in values, which damage their brands.

Mr Mulally said recent production cuts were partly designed to contain dealer inventories and thus their financing costs. Chrysler angered its dealers last year by pressuring them to take unwanted vehicles.

Car dealers are politically influential in many communities with the result that state laws make it almost impossible for carmakers to force them out of business.


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