Ford Wants to Buy Out Development Program Dealers
Ford is finally addressing its bloated dealer network through a new program of store buyouts. Automotive News [sub] reports that FoMoCo's offering a one-time "go on take the money and run" deal to the 81 members of their dealer development program. Ford will refund the dealers' investment in their Ford or Lincoln-Mercury store– even if it's worth less than their original ante. In a letter to dealers, development program director Jamy Hall wrote that "Ford is taking this action in an effort to ensure a sustainable dealer development program." However, Ford's action is raising some eyebrows; the majority of participants in the program are minorities. One dealer said he will refuse the offer because "it's just targeted at minorities because they're low-hanging fruit." Ford rejects the suggestion. They also declined to say how many dealers in the development program they expect to avail themselves of a "graceful exit" from the Ford franchise network.
On one hand, I can understand the reluctance of some of these minority dealers to accept the buyout. On the other hand, Ford isn't the only dealership in town, and with the money they get from Ford, plus the already established facilities they have, that Ford dealership can easily become a dealership for Mazda, or Hyundai, or Kia, or...
Yeah I don't get it. If you are not making money take the cash and if you are making money turn it down. Sounds easy enough to me. I seem to recall an article in AN about Ford dealers simply closing shop and turning in their franchise. So these dealers with an offer should consider them selves lucky
In some locations I could see this backfiring. Ford could put some of its weaker dealers out to pasture only to discover next year they are now selling for brand X. They are giving a nice opening to a potential market entrants. This is why Procter & Gamble has 300 different brands of detergent on the isle; they don't need to offer that many but it poses a formidable barrier to entry to potential competitors. All of the US 2.8 have a hopelessly bloated dealer structure.
The reason the development dealers do not want to sell is that they don't own the dealerships. The way I understand it, the program takes people who can't afford dealerships (often minorities) and helps them become dealers by taking an equity stake in the dealership. IOW, Ford owns a large percentage of these dealerships. The dealers involved have to buy Ford out with profits. If they are still in the program, it's because they don't yet own the store. Ford likely sees these stores as ones which they actually CAN close, but if I were a guy who had risked a lot of my own money, and who had been working to buy Ford out over time, then I would not want them coming in and trying to kill the deal.