I'd been puzzling over the apparent discrepancy between the FPV build numbers and the sales figures bandied about by a couple of recent articles.
A bit of a delve into the detail of the VFACTs numbers shed a little bit of light on the situation and showed that total sales to the end of August amounted to some 600 odd units while total builds were somewhere around the 1100 mark.
The intervening circa 500 units are sitting in dealer holding yards, which means that they pass the Ford definition of sold (invoiced to a dealer) but not VFACTs definition (registered).
To put those numbers in persepctive, the range has been seliing around 100 units per month (average) over the 6 months since builds commenced in earnest. Thaqt means that the present stock levels equate to about 5 months of sales assuming that the same level of activity can be maintained, which is probably unlikely given that there was some early pent up residual demand that had to be met.
Recent numbers suggest that the sales level might be closer to 70-80 units per month which then turns that stock level into a 7 month proposition.
Now for those who think (probably correctly) that the silly old fool is dribbling again , let me put this into the light of harsh reality with a little lesson on how the system works.
Ford sell the vehicle to your local dealer at an invoice price somewhat less than the RRP and the difference between the two represents their profit. Obvious.
The dealer finances the vehicles held in stock through a thing called a floor plan, which basically means that they incur interest charges on the value of the cars in the holding yard.
Eventually, the costs associated with holding a vehicle (interest, damage, etc.) reaches the point where the margin is reduced to zero and the dealer starts to actually be in a negative position - that is the car owes them more than they are going to get for it.
Sometimes, on slow moving models (like Cougar or T-Series) the manufacturer will choose to offer the dealers additional sales incentives or floor plan subsidies to minimise those potential losses but on other occasions they will just leave the dealer network holding the (dead) cat.
So what's my point?
Simply this. When dealer stock levels are high and subsidies or incentives seem unlikely, our friends in the dealer network usually opt to off load those vehicles at a price closer to invoice price than RRP. In extreme circumstances they are willing to cut their losses to move the offending items rather than continue to incur floor plan costs and then we see the discounting behaviour that was a bit of a trademark in the middle and latter portion of the AU. As a matter of business survival, once one starts, the rest tend to follow.
This situation is potentially exacerbated with the FPV range for two reasons.
Firstly, the dealer margin on the vehicle is below the level that is generally considered viable and secondly the model build mix appears to be not quite matched with the actual buying patterns especially with the ute.
Let me draw a hypothetical - the numbers aren't the real ones but they will do to show the point.
The dealer is invoiced for the Widget GTR-x (which has an RRP of $60,000) at $57,000 thus leaving a margin of $3,000 (ignoring the GST implications at this point). The dealer has a recommended delivery charge of $1,200 for a total potential margin of $4,200 which is reduced by the commission paid to Sammy Salesman (say $100) to $4,100.
The dealers floor plan is financed at the very kind rate of 6.5% and thus the interest charge on the Widget GTR-x amounts to $308.75 per month. In the real world there are other costs that are applied to the vehicle whilst held such as showroom running cost, minor damage, salesperson retainers etc. but we will ignore these for this simplified exercise.
Now for the simple maths.
At $308.75 per month, the floor plan will eat up the entire margin in a little over 9 months - in the real world that is likely to be far less - but before that happens the DP, sales manager, bean counter or the cleaning lady will make the decision to discount the thing to get rid of the liability.
So here is my crystal ball gaze into the not too distant future, assuming that nothing is done to remedy the situation.
1. GT and GT-p's will be on the market at between 5-7 % off RRP. Pursuits a bit more.
2. Demand will further slow as new product in the rest of the Ford range cannibalises some sales.
3. Resale values of GT/GT-p will suffer accordingly. 2nd hand Pursuit buyers will have to choose between a Pursuit and a Big Mac with their loose change.
Of course, I'll be happy to be proven wrong but I have history on my side. All we can do is prepare ourselves for the inevitable shock at trade in time and enjoy the great vehicles we have in the mean time.
Cheers
Russ
A bit of a delve into the detail of the VFACTs numbers shed a little bit of light on the situation and showed that total sales to the end of August amounted to some 600 odd units while total builds were somewhere around the 1100 mark.
The intervening circa 500 units are sitting in dealer holding yards, which means that they pass the Ford definition of sold (invoiced to a dealer) but not VFACTs definition (registered).
To put those numbers in persepctive, the range has been seliing around 100 units per month (average) over the 6 months since builds commenced in earnest. Thaqt means that the present stock levels equate to about 5 months of sales assuming that the same level of activity can be maintained, which is probably unlikely given that there was some early pent up residual demand that had to be met.
Recent numbers suggest that the sales level might be closer to 70-80 units per month which then turns that stock level into a 7 month proposition.
Now for those who think (probably correctly) that the silly old fool is dribbling again , let me put this into the light of harsh reality with a little lesson on how the system works.
Ford sell the vehicle to your local dealer at an invoice price somewhat less than the RRP and the difference between the two represents their profit. Obvious.
The dealer finances the vehicles held in stock through a thing called a floor plan, which basically means that they incur interest charges on the value of the cars in the holding yard.
Eventually, the costs associated with holding a vehicle (interest, damage, etc.) reaches the point where the margin is reduced to zero and the dealer starts to actually be in a negative position - that is the car owes them more than they are going to get for it.
Sometimes, on slow moving models (like Cougar or T-Series) the manufacturer will choose to offer the dealers additional sales incentives or floor plan subsidies to minimise those potential losses but on other occasions they will just leave the dealer network holding the (dead) cat.
So what's my point?
Simply this. When dealer stock levels are high and subsidies or incentives seem unlikely, our friends in the dealer network usually opt to off load those vehicles at a price closer to invoice price than RRP. In extreme circumstances they are willing to cut their losses to move the offending items rather than continue to incur floor plan costs and then we see the discounting behaviour that was a bit of a trademark in the middle and latter portion of the AU. As a matter of business survival, once one starts, the rest tend to follow.
This situation is potentially exacerbated with the FPV range for two reasons.
Firstly, the dealer margin on the vehicle is below the level that is generally considered viable and secondly the model build mix appears to be not quite matched with the actual buying patterns especially with the ute.
Let me draw a hypothetical - the numbers aren't the real ones but they will do to show the point.
The dealer is invoiced for the Widget GTR-x (which has an RRP of $60,000) at $57,000 thus leaving a margin of $3,000 (ignoring the GST implications at this point). The dealer has a recommended delivery charge of $1,200 for a total potential margin of $4,200 which is reduced by the commission paid to Sammy Salesman (say $100) to $4,100.
The dealers floor plan is financed at the very kind rate of 6.5% and thus the interest charge on the Widget GTR-x amounts to $308.75 per month. In the real world there are other costs that are applied to the vehicle whilst held such as showroom running cost, minor damage, salesperson retainers etc. but we will ignore these for this simplified exercise.
Now for the simple maths.
At $308.75 per month, the floor plan will eat up the entire margin in a little over 9 months - in the real world that is likely to be far less - but before that happens the DP, sales manager, bean counter or the cleaning lady will make the decision to discount the thing to get rid of the liability.
So here is my crystal ball gaze into the not too distant future, assuming that nothing is done to remedy the situation.
1. GT and GT-p's will be on the market at between 5-7 % off RRP. Pursuits a bit more.
2. Demand will further slow as new product in the rest of the Ford range cannibalises some sales.
3. Resale values of GT/GT-p will suffer accordingly. 2nd hand Pursuit buyers will have to choose between a Pursuit and a Big Mac with their loose change.
Of course, I'll be happy to be proven wrong but I have history on my side. All we can do is prepare ourselves for the inevitable shock at trade in time and enjoy the great vehicles we have in the mean time.
Cheers
Russ