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Proposed Blue Oval cuts rattle dealers

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By Donna Harris
Automotive News / November 15, 2002

In a stunning reversal, Ford Division is proposing to cut Blue Oval payments to dealers by 60 percent in three years.

The move will save financially troubled Ford Motor Co. hundreds of millions of dollars. But it also will squeeze the profits of many Ford dealers who rely on Blue Oval payments.

Under the current Blue Oval program, dealers are certified by meeting certain customer-satisfaction and other standards. Certified dealers receive 1.25 percent of the base sticker price of each new vehicle, an average of $250 per unit.

In a satellite broadcast to dealers on Thursday, Nov. 14., Steve Lyons, the division's general sales manager, proposed reducing the payments to 0.5 percent of base sticker, or manufacturer's suggested retail price, by 2005. Lyons made no promises that margins would be restored.

Ford raised the invoice price by 1 percentage point at Blue Oval's launch in 2000. So if the Blue Oval payments are reduced to 0.5 percent of the sticker, that would be a net loss to the dealers.

Blue Oval has been controversial from the beginning, but the company stuck with it despite lawsuits and protests from dealers worried about a future of ever-rising standards to become certified.

Ford won many dealers over, particularly as hefty checks started rolling in. By changing course, the company could lose the good will it created through early revisions to the program.

100% unhappy

"The few dealers that oppose Blue Oval won't be satisfied because it did not go away completely, and the vast majority that have embraced the program will now be disgruntled," said Jerry Reynolds, former chairman of the Ford Division National Dealer Council, who owns Ford stores in Garland, Texas, and Edmond, Okla. "That makes for a 100 percent unhappy dealer organization."

The automaker says it is paying $700 million annually to Blue Oval dealers. Eighty percent of the payments are funded by the 1 percent increase in dealer invoice when the program was established.

Ford likely will cut the payments from 1.25 percent to 1 percent of base sticker price in 2003, 0.75 percent in 2004 and 0.5 percent in 2005, Lyons told dealers.

"I was counting on that money," said Don Price, dealer principal of Lafayette Ford in Fayetteville, N.C., who was a member of the Ford dealer council in 2000 and 2001. He lobbied against state legislation that would phase out Blue Oval in North Carolina. "But I understand that financially Blue Oval is a much bigger drain than Ford intended it to be."

Carter Myers III, chairman of the National Automobile Dealers Association, said many Ford dealers made major financial commitments expecting the program to continue for at least five years. "We are concerned that the proposed financial changes could seriously impair the working relationship between Ford and its dealers going forward," Myers said.

Ninety-five percent of Ford Division dealers are Blue Oval certified.

Softening the blow

Though only a proposal, the plan is unlikely to change much when Ford introduces the revisions by year end. Some dealers believe Ford may opt for a flat dollar bonus because a percentage-based payment rises when new-vehicle prices go up.

In a prepared statement, Lyons said Ford is working closely with the Blue Oval Certified Advisory Board and the Ford dealer council on the program.

To soften the impact, dealers said, Lyons is considering some concessions, such as:

Increasing profit margins on some vehicles, such as the Ford Focus and Ranger, but Lyons made no specific promises.

Raising the bar on customer-satisfaction scores for Blue Oval dealers in 2003 and 2004 by one percentage point instead of two percentage points. Dealers don't want any increase.

Expanding the number of dealer employees eligible for new-vehicle discounts to four a year from two a year.

Dropping requirements for a dedicated Internet salesperson, though dealers say they value Internet leads and would keep the staff anyway.

Reducing the frequency of consulting firm J.D. Power and Associates' evaluations of larger Blue Oval dealers to every two or three years instead of annually.

Letting small dealers over the course of a year toss one or two bad customer-satisfaction surveys.
 
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