Ford dealers rail against incentive plan

Ford Motor Co. of Canada Ltd. is planning more punitive measures against its dealers to gain increasing control of their businesses, says a group representing the dealers.

The Toronto Star
April 8, 2000

Ford dealers rail against incentive plan
Customer survey to determine wholesale price
Tony van Alphen

Ford Motor Co. of Canada Ltd. is planning more punitive measures against its dealers to gain increasing control of their businesses, says a group representing the dealers.

The Canadian Ford Dealers Association, which is already suing the auto giant over alleged contract breaches, says the company intends to increase the wholesale price of cars and force dealership owners to earn the money back on the basis of customer satisfaction surveys.

The proposal has widened the rift between Ford and its dealers over the company’s overhaul of its retail network.

A source close to the Canadian Automobile Dealers Association revealed yesterday the national group decided this week to financially support the Ford group’s legal fight against the manufacturer after making little progress in months of negotiations.

Ford, the country’s second-biggest auto maker, calls its latest proposal retail excellence “awards.” But the Ford dealer group says the customer surveys are unreliable and subjective and the move will hurt store owners financially.

Sonja Falkenberg, the association’s lawyer and director, said Ford is increasing wholesale prices by 1 per cent or an average of $260. That works out to a $260,000 cut in cash flow on the basis of 1,000 sales annually that the dealer has to earn back, she said.

“Based on the level of customer satisfaction achieved, a dealer can earn back nothing, part or all of the holdback,” Falkenberg added. “However, the earn-back will not be paid in cash but rather in a combination of credits against future expenses and partial cash. This is called an award?”

Ford spokesperson Lauren More said a small percentage of the auto maker’s 565 dealers may not like the proposals but 100 per cent of the company’s customers will benefit.

“All our programs are focused on customer satisfaction,” said More, Ford’s sales and marketing communications manager.

Falkenberg said Ford plans to start the program next January but More said the company has not made a decision.

Ford’s proposal comes after the company stated asking dealers late last year to sign performance contracts that would supersede franchise agreements according to the association.

The contracts allow the company to demand that up to 60 per cent of dealers participate in programs to improve performance. But if dealers continue underperforming, they must sell to Ford or someone that the company approves of, the association said.

Falkenberg said Ford used the performance contract as a “club” in the past to shape up seriously underperforming dealerships but now the company wants to gain more control of them.

However, More said Ford’s goal is to improve dealer performance for customers. Furthermore, poor service and performance at one dealer reflects badly on others, she noted.

Last October, the company caused dissension when it turned all of its Lincoln Mercury dealers into Ford stores. It triggered legal action by four dealers, who argue Ford has breached their franchise agreement because the company allowed new outlets within 15 kilometres of existing stores.

The four dealers sought class-action status on behalf of all dealerships and a declaration that Ford could be liable for any losses.

But in a ruling against the application in February, the judge said it would be simpler and more efficient if one or more dealers sought a court interpretation of their franchise agreements. The Ford dealers association has appealed.

Last month, the national dealers association said that despite months of talks, it has become clear Ford was not prepared to respect the rights of dealers.

Ford continues a “pattern of encroachment” through its performance contracts that could seriously affect dealers’ profitability, association president Rick Gauthier said in a letter to dealers. “It is abundantly clear that dealers do not trust Ford,” he added.

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Risks: Profit grab, Encroachment (too many outlets in area), Big Auto, Opportunism (self-interest with deceit), Canada, 20000408 Ford dealers

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