Ford CEO Farley Cracking Down on Dealer Markups

[j2sys]

57 minutes ago, fuzzymoomoo said:

Theres not a dealer around here that's stupid enough to refuse A-plan when so many people around here work for ford or has family who does. 

Just across the border in Toledo, that's a different story.  Had one dealer tell me they'd happily take A-Plan...

... but living an hour away was not "local" enough, so they just wouldn't do it for me.

[mackinaw]

1 hour ago, fuzzymoomoo said:

Theres not a dealer around here that's stupid enough to refuse A-plan when so many people around here work for ford or has family who does. 

 

Likewise with Z-plan on northern Michigan.  There are a ton of Ford retirees up here, and any dealer that won't honor Z-plan won't be in business long.

[j2sys]

Also, if it tells you anything, Ford, GM, and Chrysler (er, FCA?  Stellantis?) advertise employee pricing in their commercials in the Detroit/Southeast Michigan market.  Many Ford dealers will list A/Z pricing online, in their inventories.  You'll run into some dealers that won't honor it at all or on certain models, but generally they almost expect you to be eligible.

[fuzzymoomoo]

19 minutes ago, j2sys said:

Also, if it tells you anything, Ford, GM, and Chrysler (er, FCA?  Stellantis?) advertise employee pricing in their commercials in the Detroit/Southeast Michigan market.  Many Ford dealers will list A/Z pricing online, in their inventories.  You'll run into some dealers that won't honor it at all or on certain models, but generally they almost expect you to be eligible.

The only things I've ever seen them not honor it on are things like the hi-po Mustangs that are part of the program, as few and far between as those are. 

[fuzzymoomoo]

Now that I think about it there was a rumor that a few weren't going to honer it on Focus and Fiesta STs before they realized they weren't going to be production limited. 

[jcartwright99]

14 hours ago, fuzzymoomoo said:

Theres not a dealer around here that's stupid enough to refuse A-plan when so many people around here work for ford or has family who does. 

 

When I do buy, there is a great chance I order/buy from a Metro Detroit dealer. I do see some are advertising A plan pricing. There seems to a large number of Ford Dealers that are not taking A/Z plan. Here in Illinois, good luck as most dealers are only giving MSRP to orders only. Anything on the lot will have some sort of markup.

[rperez817]

Another dealer with crazy markup on F-150 Lightning. Stearns Ford, Burlington, North Carolina. MSRP = $69,554 (the $139,900 shown below is not the actual MSRP). Asking price = $142,895.

 

[pffan1990]

1 hour ago, rperez817 said:

Another dealer with crazy markup on F-150 Lightning. Stearns Ford, Burlington, North Carolina. MSRP = $69,554 (the $139,900 shown below is not the actual MSRP). Asking price = $142,895.

 

 

The sad thing is that someone will likely pay that price. The dealers will keep doing this until either the market changes or when people stop paying markups.

[j2sys]

1 hour ago, rperez817 said:

Another dealer with crazy markup on F-150 Lightning. Stearns Ford, Burlington, North Carolina. MSRP = $69,554 (the $139,900 shown below is not the actual MSRP). Asking price = $142,895.

 

 

They just didn't feel comfortable sneaking that last $2,995 into the misrepresented, inflated "MSRP" value...

[jcartwright99]

40 minutes ago, j2sys said:

 

They just didn't feel comfortable sneaking that last $2,995 into the misrepresented, inflated "MSRP" value...

Oh...our mistake. Our Internet Department made a mistake. Generally if you read the fine print on the website....there are legal pricing disclaimers.

 

*****NOT Responsible for incorrect pricing.....please inquire to ensure pricing

[j2sys]

55 minutes ago, jcartwright99 said:

Oh...our mistake. Our Internet Department made a mistake. Generally if you read the fine print on the website....there are legal pricing disclaimers.

 

*****NOT Responsible for incorrect pricing.....please inquire to ensure pricing

 

My point was that the listed "MSRP" is actually heavily marked up...  and then they added on a $2,995 "market adjustment".  They're already wanting tens of thousands over MSRP (but erroneously calling that MSRP as opposed to the dealer's selling price), then they have the nerve to demand an extra $3k on top of that.  lol

[rperez817]

1 hour ago, j2sys said:

 

My point was that the listed "MSRP" is actually heavily marked up...  and then they added on a $2,995 "market adjustment".  They're already wanting tens of thousands over MSRP (but erroneously calling that MSRP as opposed to the dealer's selling price), then they have the nerve to demand an extra $3k on top of that.  lol

 

I agree j2sys. The listed "MSRP" in the Stearns Ford example is clearly false, Ford and consumer agencies can and should charge the dealership with false advertising. Attached is the window sticker for this particular F-150 Lightning, VIN 1FTVW1EL4NWG00683. 

1FTVW1EL4NWG00683.pdf

[Bob Rosadini]

Another example. Friend of mine took his son last week to pick up a new 550 dealer had in stock with landscape dump body .

So my friend asks sales guy if they have any Broncos  in stock.  Answer?  "Yes -2, $20,000 over  invoice".  

[ice-capades]

54 minutes ago, Bob Rosadini said:

Another example. Friend of mine took his son last week to pick up a new 550 dealer had in stock with landscape dump body.

So, my friend asks sales guy if they have any Broncos in stock.  Answer?  "Yes -2, $20,000 over invoice".  

 

I've never been supportive of ADM's, with the exception of those on Shelby Mustangs and F-150 Raptor's which have very limited availability for most Dealers. With the exception of Dealers with a high enough "Share of Nation" sales history for Mustang sales, the majority of Dealers only get allocation for one Shelby per Model Year, have to pay an annual fee in order to sell a Shelby, stock Shelby specific parts and have at least one technician certified to work on Shelby's. In addition, the markup (MSRP - Invoice) on a Shelby has gone down over the years. Compared to the Shelby Mustangs, the F-150 Raptor availability has gotten much better over the years.

 

Dealers adding markups like this may realize short term gains from the customers that are willing to pay the price and can afford to do so, but long term it affects the dealership reputation from all those that tried to do business with them and walked away. Word of mouth for such business practices does have an effect and just adds to the general perception that Dealers can't be trusted. At some point overall inventory will stabilize, hopefully at a lower level to eliminate the excessive rebates of the past and justify selling vehicles at or near MSRP. Whether or not that happens will depend on the manufacturers having learned enough in the past two years to stay disciplined enough to maintain stock inventory at a lower level. When the microchip and supply chain issues are resolved, if one of the OEM's starts cranking out stock inventory to previous levels, the industry's new pricing model can collapse, and we'll be back to the old school practice of sales being dependent on rebates and incentives.   

[rperez817]

40 minutes ago, ice-capades said:

When the microchip and supply chain issues are resolved, if one of the OEM's starts cranking out stock inventory to previous levels, the industry's new pricing model can collapse, and we'll be back to the old school practice of sales being dependent on rebates and incentives.   

 

I think all OEMs in the U.S. market have learned the lesson that cranking out dealer stock inventory of new vehicles at levels prior to the Covid-19 pandemic was a horrible business model for all involved - OEMs, dealers, and consumers.

 

Fingers crossed that this old school practice is now dead and gone permanently.

[iamweasel]

1 hour ago, rperez817 said:

 

I think all OEMs in the U.S. market have learned the lesson that cranking out dealer stock inventory of new vehicles at levels prior to the Covid-19 pandemic was a horrible business model for all involved - OEMs, dealers, and consumers.

 

Fingers crossed that this old school practice is now dead and gone permanently.

 

It's up to the consumers to determine that.  They have to learn to order and WAIT for their ordered vehicle to arrive.  For the most part, the US consumer - who has very little patience - has not been that type of buyer when it comes to motor vehicles.  We'll see if the madness of the last couple years helped changed some mindsets. 

 

I think we'll definitely go back to dealers having stock again, but to what extent we shall see.  Keep in mind for consumers, less inventory on the ground means fewer deals, too, given a lower number of motivated sellers.  

[akirby]

46 minutes ago, iamweasel said:

 

It's up to the consumers to determine that.  They have to learn to order and WAIT for their ordered vehicle to arrive.  For the most part, the US consumer - who has very little patience - has not been that type of buyer when it comes to motor vehicles.  We'll see if the madness of the last couple years helped changed some mindsets. 

 

I think we'll definitely go back to dealers having stock again, but to what extent we shall see.  Keep in mind for consumers, less inventory on the ground means fewer deals, too, given a lower number of motivated sellers.  

If dealers and mfrs stick to their guns buyers will have no choice.  I do think buyers will embrace it now that they’ve been forced to do it.

 

What I foresee is 3-4 versions of each vehicle in a few popular colors in stock for test drives and immediate delivery.  A nice low cost SE or XLT model modestly equipped, a mid version and a fully loaded top end version.  Give a discount to custom order and make more option combinations available and possibly more colors.

[Bob Rosadini]

2 hours ago, ice-capades said:

 

I've never been supportive of ADM's, with the exception of those on Shelby Mustangs and F-150 Raptor's which have very limited availability for most Dealers. With the exception of Dealers with a high enough "Share of Nation" sales history for Mustang sales, the majority of Dealers only get allocation for one Shelby per Model Year, have to pay an annual fee in order to sell a Shelby, stock Shelby specific parts and have at least one technician certified to work on Shelby's. In addition, the markup (MSRP - Invoice) on a Shelby has gone down over the years. Compared to the Shelby Mustangs, the F-150 Raptor availability has gotten much better over the years.

 

Dealers adding markups like this may realize short term gains from the customers that are willing to pay the price and can afford to do so, but long term it affects the dealership reputation from all those that tried to do business with them and walked away. Word of mouth for such business practices does have an effect and just adds to the general perception that Dealers can't be trusted. At some point overall inventory will stabilize, hopefully at a lower level to eliminate the excessive rebates of the past and justify selling vehicles at or near MSRP. Whether or not that happens will depend on the manufacturers having learned enough in the past two years to stay disciplined enough to maintain stock inventory at a lower level. When the microchip and supply chain issues are resolved, if one of the OEM's starts cranking out stock inventory to previous levels, the industry's new pricing model can collapse, and we'll be back to the old school practice of sales being dependent on rebates and incentives.   

Joey,

Agree 100%.  Surprising thing is this was at along established dealership.  Then again this may have been some rookie salesman may have just been trolling my friend to see what reaction he  got.

My friend by the way HAS a new Bronco. It is registered and he hasn't driven it since he got it a month ago-big sticker V-6.  Just bidding his time. 

My opinion is I think most of  the jackasses that pay huge premiums are just at Barrett Jackson, Mecom trying to impress the chick half their age that is with them just how much money they have?

[iamweasel]

29 minutes ago, akirby said:

If dealers and mfrs stick to their guns buyers will have no choice.  I do think buyers will embrace it now that they’ve been forced to do it.

 

What I foresee is 3-4 versions of each vehicle in a few popular colors in stock for test drives and immediate delivery.  A nice low cost SE or XLT model modestly equipped, a mid version and a fully loaded top end version.  Give a discount to custom order and make more option combinations available and possibly more colors.

 

Currently the auto industry still has more annual capacity than average demand.  It's easy to build to order when demand is greater than production capability, but that isn't always the case, though, so when the demand curve inverts the OEM has 2 choices:

 

1)  Shut the plants down to control supply

2)  Start throwing incentives around to "encourage" dealers to keep ordering  (with the right incentives, the dealers are happly to comply and pay a little floorplan if needed)

 

I'm pretty sure most OEM's will choose option #2.  I'm not a believer that a build to order model will be the norm when things return to normal.  Will there be more of it?  Sure.....but I still think selling out of stock will represent at least half of the annual sales.  (Until a couple years ago, I think that # was close to 75% for Ford.)

[akirby]

Orders were only about 10% of sales pre pandemic.  Even now it’s only 50%  I think you’ll see BEVs be mostly orders and ICE be at least 50%.  But I don’t think you’ll see OEMs over producing or dealers having hundreds of vehicles in stock.  One thing the pandemic has shown is that the OEMs can make just as much money on lower volumes.

[rperez817]

52 minutes ago, iamweasel said:

I'm not a believer that a build to order model will be the norm when things return to normal. 

 

If not the build to order model, what approach to new vehicle sales will become the norm when things return to normal? It's extremely unlikely that the old school model of dealers carrying excessive new vehicle stock that ice-capades described earlier will be resurrected.

 

At Ford, Jim Farley is structuring build to order to be the norm, at least for Model e division. And other automakers are putting increased emphasis on retail customer sold orders for new vehicles too. 

 

John McElroy from Autoline says that with "the franchise system [with the old school dealer stock business model], cars are not shipped to their point of optimum demand. But with the build to order model like Tesla uses, they are". In the video below, McElroy explains how the build to order model reduces "friction" throughout the entire process, reducing costs for OEMs and dealers and improving customer satisfaction.

 

[iamweasel]

2 hours ago, rperez817 said:

 

If not the build to order model, what approach to new vehicle sales will become the norm when things return to normal? It's extremely unlikely that the old school model of dealers carrying excessive new vehicle stock that ice-capades described earlier will be resurrected.

 

At Ford, Jim Farley is structuring build to order to be the norm, at least for Model e division. And other automakers are putting increased emphasis on retail customer sold orders for new vehicles too. 

 

John McElroy from Autoline says that with "the franchise system [with the old school dealer stock business model], cars are not shipped to their point of optimum demand. But with the build to order model like Tesla uses, they are". In the video below, McElroy explains how the build to order model reduces "friction" throughout the entire process, reducing costs for OEMs and dealers and improving customer satisfaction.

 

 

You can't use a new player in ramp-up mode (Tesla) as the example for how the industry will be.  When they mature their production capacity will exceed demand at certain times which leads to a different type of behavior.  Car volumes are far more erratic than production volumes which are typically constant.   Plus, Tesla has a more well-off/higher-tech clientele who has a higher order rate (vs buying out of stock) anyway.

 

The guy in that video seems oblivious to a couple key points:

1)  You **CAN** build to order from a "franchised dealer" now and always have been able to do that.  He talks like they can't do that at all.  Talking about discounting a car because it's the wrong color....c'mon, man, that's the oldest trick in the book.

2)  He fails to address the opportunity cost of those "higher profit" build to order cars - the massive loss an OEM takes when you slow/cut production.  Will they make a few more bucks PER UNIT when they don't have to incentivize cars like today's marke - sure - but their overall gross profit is down when they only make 75% of what a plant can produce.

 

Bottom line is until auto plant capacity nationwide is at or below demand **someone** is going to have excess inventory.  That someone will then discount cars and steal buyers away from those who may custom order due to the big price difference.  Round and round we go.  Annual production capacity has to be lower for this to work and while everyone including Ford is talking a good game, none of them are actually reducing production.  Plus, plant capacity nationwide is actually increasing with more and more startups (like Rivian and VinFast in additon to Tesla) adding production capacity when annual demand isn't really increasing.    

 

So yes, everyone wants to increase the number of custom orders being done, but I don't see a big shift in this happening on the ICE side.  With electrics, if production capacity is still below demand then yeah, you'll see more of it in the short-term, but 20 years from now when all plants are producing XX% more electric vehicles than is demanded, then what?  There will be excess electrics on the ground to sell then, too.

 

So I don't expect the business model to be all that much different with the legacy OEM dealers going forward.  I can see them having less inventory on the ground but not 75% less.  I also think the pure electric companies may have to start stocking vehicles at some point, too, once the demand starts to become lower than their production capacity.  That may be a while, though, but there is room for stock vehicles AND customer-order vehicles.  It won't be all one or the other.

 

 

 

Edited July 26, 2022 by iamweasel
typo

[silvrsvt]

1 hour ago, iamweasel said:

2)  He fails to address the opportunity cost of those "higher profit" build to order cars - the massive loss an OEM takes when you slow/cut production.  Will they make a few more bucks PER UNIT when they don't have to incentivize cars like today's marke - sure - but their overall gross profit is down when they only make 75% of what a plant can produce.

Given what has been going on for the past 30 months or so, production slow downs haven’t hurt the auto makers as much as incentives have in years past. 
 

There is going to be a mindset change with the buying public and ordering a car-would you rather buy what you exactly want at a set price and maybe get $1000 bucks back (like Ford has been doing with custom ordered products) with exact pricing within 60-90 days or deal with a dealership and possibly overbuy a car that you didn’t want even though it has a lot of incentives on it? 
 

I’ve been ordering my cars from Ford for almost the past 30 years this way, so this is appealing to me. 

[iamweasel]

3 hours ago, silvrsvt said:

Given what has been going on for the past 30 months or so, production slow downs haven’t hurt the auto makers as much as incentives have in years past. 

 

I don't believe that to be true in many cases.  Called my buddy who works in Finance and he looked up some #'s.  June TYD F-Series sales volume has been this in the last few years:

 

2019 = 448K

2020 = 367K

2021 = 362K

2022 = 299K

 

So from 2019 to 2022, in the first half of the year, they lost nearly 150,000 units of sales - mostly due to production issues.   Even eliminating all variable marketing has still resulted in a huge profit reduction on F-series from "normal times" due to volume reduction.  Roughly speaking 2019 vs 2022 would look like this:

 

2019 = 448K sales x $8,250 avg variable profit (before fixed costs) per unit = $3.7B

2022 = 299K sales x $10.100 avg variable profit per unit = $3.0B  (OEM Incentives have done down about $2,000 per unit)

Net reduction in variable profit = $700M

[silvrsvt]

25 minutes ago, iamweasel said:

 

I don't believe that to be true in many cases.  Called my buddy who works in Finance and he looked up some #'s.  June TYD F-Series sales volume has been this in the last few years:

 

2019 = 448K

2020 = 367K

2021 = 362K

2022 = 299K

 

So from 2019 to 2022, in the first half of the year, they lost nearly 150,000 units of sales - mostly due to production issues.   Even eliminating all variable marketing has still resulted in a huge profit reduction on F-series from "normal times" due to volume reduction.  Roughly speaking 2019 vs 2022 would look like this:

 

2019 = 448K sales x $8,250 avg variable profit (before fixed costs) per unit = $3.7B

2022 = 299K sales x $10.100 avg variable profit per unit = $3.0B  (OEM Incentives have done down about $2,000 per unit)

Net reduction in variable profit = $700M

But that is the problem, Ford is too dependent on F-150 sales-spread this across the whole lineup and other lines like the Escape are more profitable because they don’t have incentives on them and they don’t have the same margins as more expensive products