By on July 11, 2011

Ford hasn’t built a Mercury in six months and 98 percent of its erstwhile dealers have signed termination agreements with the parent company, but the remaining 31 dealership owners are digging in their heels for a fight. Automotive News [sub] reports that these Mercury dealers recently spent huge amounts building or renovating their Lincoln/Mercury stores, and that Ford’s termination offers are embarrassingly tiny in comparison.

For example, the owner of Francis Scott Key L-M Inc. in Frederick, Md. claims to have spent $5.5m on a dealership expansion which was completed in 2007, but only received a termination offer of $181,026 from Ford. Liberty Lincoln-Mercury in Clifton, N.J spent $7.7m upgrading its facilities in 2004, only to receive a $733,575 termination offer from Ford. So far, AN counts four dealers who are suing Ford in federal court, and an undisclosed number have filed complaints with their state DMV. Ford, meanwhile, is trying to engage the holdouts in mediation, and though some have settled others are reporting bad experiences. Meanwhile, there’s another problem that underlines the the entire dispute: can a standalone Lincoln dealership even survive?

Though Ford won’t comment on the mediation process, it seems that the experience has been decidedly mixed for the dealers, as AN reports

Richard Sox, a Florida lawyer representing Forrester Lincoln-Mercury of Chambersburg, Pa., in a federal lawsuit filed in Pennsylvania, says his client has declined mediation based on information from dealers who have gone through the process with Ford’s outside counsel. “The consistent report we received was there was no give and take,” Sox said. “It was just an opportunity for them to browbeat the dealer into accepting the amount previously offered.”

On the other hand, another Sox client, Bayway Lincoln-Mercury in Houston, settled with Ford in April after filing a case with the Texas Department of Motor Vehicles last July. A confidentiality agreement prevents Sox from disclosing terms, but “you can presume if there was a settlement, the dealer was satisfied.” That implies the settlement amount surpassed Ford’s initial termination offer.

So what accounts for the difference in experiences? The deciding factor seems to be whether or not the Mercury franchise was part of a Ford store or a standalone Lincoln-Mercury dealership. With Ford-brand sales remaining strong, F-L-M dealers have plenty of incentive to take a hit on the unproductive Mercury brand in order to maintain good relations with the Ford factory. On the other hand, dealers who face the prospect of having to keep a store running with Lincolns alone are digging in their heels. As the lawyer for one former L-M dealer puts it,

Lincoln doesn’t generate anywhere near the volume that other brands do and nowhere close to Lincoln and Mercury together. So to pay for that overhead that comes with the new building is very difficult.

Meanwhile, this drama is playing out over a background of troubling dealer relations for the Lincoln brand. Ford is asking Lincoln dealers to upgrade their facilities to the tune of $1m-$2m, and is already having trouble culling some recalcitrant Lincoln stores. And because Ford has yet to announce anything that inspires serious faith in Lincoln’s future product plans, dealers are hardly lining up to take what Alan Mulally admits is “a leap of faith.”

Since 80 percent of former Mercury dealers also sold the Ford brand, the number of dealers facing both the tiny termination offer and the uncertain prospect of keeping a store open on Lincoln sales alone is small. Also, Ford claims it can afford to lose some Lincoln dealers for “throughput” reasons, and many dealers would have a hard time proving damages anyway, for the simple reason that Mercury stores rarely made much profit. But because Ford has a tough sell to make on Lincoln’s future anyway, this dispute is just another level of agony for Ford’s tortured luxury brand efforts. Lowballing termination offers while asking for a million dollar plus upgrade and not showing much in the way of inspiring future product is a brutal situation to be in, and some dealers are even arguing that Ford is destroying the remaining value in its Lincoln brand. And if standalone Lincoln dealers are expected to survive, they’ll need higher volume products, which in turn will further depress Lincoln’s battered image.

So what’s a Mercury dealership worth? Evidently not much. But the question that Ford has to be seriously worried about right now is how much is a Lincoln dealership worth?

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29 Comments on “What’s A Mercury Franchise Worth?...”

  • avatar

    It’s the right question, “What is a Lincoln franchise worth?” I wouldn’t have wanted to be a L-M dealer who is now just a L dealer; I can’t imagine there is anywhere near enough L volume to support the basic overhead involved much less piling on more to make a L dealership something more distinguished.

    I think ultimately the L’s will have to be combined with F’s to make it work, similar to Chrysler Group, LLC. Without that hook-up it would be like having only Chrysler’s to sell.

  • avatar

    I work right down the street from the pictured dealer (San Diego).

    • 0 avatar

      Would you like a cookie??

      Or perhaps a piece of pie??


    • 0 avatar

      And that dealer has plenty of worth as a standalone Lincoln dealer, as it’s the only Lincoln dealer in a county of 3.1 million people.

      Maybe that’s the trick: Have it be exclusive enough for only one Lincoln dealer per medium-sized metro area until the product is built back up.

  • avatar

    After 2002 when the Villager and Cougar were nixed, Mercury didn’t offer anything unique in its model line, and nothing seriously indicated they’d ever get anything. The closest they got was the Messenger concept.

    Despite this unyielding fallowness, a full 20 percent of Mercury Lincoln dealers pressed on, offering two [email protected]$$ed brands. For eight years.

    Hindsight is 20/20, so I feel like more of that 20-percent should have read the writing on the wall. Though I imagine the prohibitive costs of adding Ford and existing Ford dealers in their vicinity precluded them from doing anything about it.

  • avatar

    The L/M dealership I used saw the writing on the wall, and sold his dealership back to Ford in 2008.

    His staff indicated to me that he knew Ford was letting the Panther platform die a slow, painful death, and seeing 2/3rds of his sales were Town Cars and Grand Marquis, decided the future looked bleak.

    As far as dropping Mercury not costing them sales, my wife and I just bought a new car this year – a Volkswagen.

    • 0 avatar

      Ayup. I know this issue has been talked to death on this site, and we all know who the Panther apologists here are , but there’s just no getting around it, the decision not to continue investing in a full size RWD platform will go down as a huge mistake. With the end of the Grand Marquis, retaining the Town Car — and upgrading it — would give Lincoln a unique product.

      • 0 avatar

        The Panther Platform is so outdated at this point that upgrades wouldn’t make it competitive with the other fullsize RWD luxury platforms. The police/livery buyers are the only ones left that really want a BOF sedan, aside from a hanful of Panther nuts who buy used due to the massive depreciation anyway.

        I do agree that Lincoln will eventually need a new RWD fullsize platform to compete with the S-Class, 7 Series, A8, LS, etc, but a halo car can come later.

  • avatar

    And the follow up question is what is a Lincoln franchise worth?? What’s to stop Ford from folding up Lincoln the same way they did Mercury.

    Look at Lincoln’s line up and you see Mercury. Combine this with Ford’s secrecy concerning upcoming Lincoln products while asking Lincoln dealers to shell out more money for upgraded facilities and IMO you have a perfect storm brewing.

    Can Lincoln make competitive products? There are very competitive products in the space in addition to a revitalized Cadillac, Buick and Hyundai. Yes Hyundai.

    Can Lincoln become a global brand and if not can it survive solely in North America?

    I know this article is about Mercury but its hard not to see the parallels with Lincoln.

    • 0 avatar

      Ford should close up shop on Lincoln too. Ford proved a long time ago with the LTD that there’s nothing Lincoln can do that Ford could do just as well. And now that the prestige of the Lincoln name (built up over decades with Continentals and Marks) has been squandered, there’s no reason to keep it around. Buyers (or the lack of) seem to agree. Ford would do better resurrecting the Thunderbird as a 4-door coupe halo, or do nothing at all. Ford is all that is needed.

      • 0 avatar

        In my part of the country Mercury is worth zero, but Ford should continue its two-tiered approach to keep a piece of the US auto market.

        Were I to advise Mr Mulally I would urge him to offer more distinction and uniqueness with the Lincoln products setting them aside from the Ford products.

        We all know that the drive trains are going to be pretty much the same, but the sheet metal, trim and luxury level should differentiate Lincoln from Ford. Reducing the number of options and trim-levels would also be at the top of my list of recommendations.

  • avatar

    The dealers mentioned made terrible business decisions plain and simple. How did they pencil out their numbers to justify spending $7.7 million on facility upgrades? They’d have to sell probably 300 vehicles a year over 10 years just to break even. On a couple of brands that have shown declining sales since the late 1990s, and whose average dealer sells fewer than 100 units per year! These guys obviously feel like idiots and want Ford to pony up to save face.

  • avatar

    What’s a Lincoln dealership worth? Assuming Lincoln will be out of business in 5 years, the average dealer will sell 168 units this year (if new business flows from the closed dealers to the remaining ones), 5% decline in sales every year for the 5 years, a 5% net margin on the average $30K sale, and a nice profit for my investment, I would not pay more than $500,000 for the healthiest of Lincoln franchises.

  • avatar

    I don’t know the figures offhand, but I’d assume there are more combined Ford-Lincoln stores than standalone Lincoln stores. Those dealerships that are Lincoln only are likely near a successful Ford dealership who could by the franchise rights if the current owners choose to shutter the doors.

    While the situation isn’t as dire as this post seems to indicate, after all Lincoln’s US sales are about on par with Infiniti, who no one is singing a dirge for yet, it does make more sense in most cases to move to combo stores instead of standalone Lincoln dealerships.

    A strong Ford store can do 200 – 300 cars per month, so asking for only a couple million to upgrade the Lincoln side of the showroom is chump change. Even if the added Lincoln franchise only brings in another 50 units per month, most of those will be higher profit sales. Plus, having the luxury nameplate on the door will bring in customers that might not have otherwise set foot in a Ford showroom, and some of those people will buy Fords even if they don’t buy Lincolns.

    As far as the new product goes, let’s wait till we actually see it before writing it off.

  • avatar

    As for taking leaps of faith, were I a Lincoln dealer principal, I would respond just as I did when I was the sales manager of a 1st tier Ford supplier, “I’m happy to accrue the expenses, and make the investment, associated with the leap of faith, just as long as you indemnify me for any non-amortized expense and investment amounts when the leap comes to an end.”

    There was always a lot of bluster from Ford about contingent-liability waivers having to be signed by the CEO or BOD, or that they thought such “unreasonable” requests would result in “Ford rethinking the relationship”, but I never gave in, and in the end, the contract was signed with a solid indemnification clause, and the business, to this day (despite exercising some of those post-leap clauses) the business runs well and the relationship is regularly feted by Ford.

    Oh, and most importantly, unlike most dealers, I did not have extremely sympathetic state dealership franchising laws on my side…

  • avatar

    This article reminded me of reading the following some years ago:

    Elena Ford was put in charge of product strategy for the Lincoln and Mercury brands a few years ago, at a time when their future was in doubt. That effectively shut down debate inside the company, says another former senior executive. “People thought, ‘Oh, they just put Elena in there. I don’t think I’m going to be the person to tell them it’s a waste of time.\'”

    Elena Ford responds: “Yes, I’m a Ford, but as far as I can tell, people have absolutely no problem looking right past that when it comes to getting work done. I’m candid with my colleagues, as they are with me, especially when we’re making decisions that are in the best interests of our company.”

  • avatar

    Don’t the Mariner’s front & rear doors seem a different shade?

    I’d keep the Lincoln-only dealer and focus on upscale used cars like say low mileage German cars. Used cars and service are no doubt keeping the lights on at Licoln dealers and other niche brands anyway.

  • avatar

    If I owned a Lincoln dealership in a rural area, I’d be looking hard at switching over to Hyundai if there wasn’t another one within a 2-3 hour drive. Lincoln will be gone in 10 years.

  • avatar

    Henry Ford bought Lincoln so he could do a payback on the Lelands the brand is a waste of ink and space

  • avatar

    Last month I stopped in at Sesi Lincoln-Mercury-Mazda in Ypsilanti, MI to visit with some old friends that work there. When I worked there back in 1996 that place was humming constantly with business. This time, it was well, quiet. One of the salesmen was telling me that since they lost Mercury it has really hurt them. Having Mazda helps, but it’s just not the same. And to make matters worse, several years ago Mr. Sesi got talked into building a second store in Ann Arbor and offer Volvos as well. It’s not in a great location, as there just isn’t any room for actual cars. They are getting the impression from Dearborn that even though the Ypsilanti store is way larger, and has been there for over sixty years, and is an icon of Ypsilanti, that Ford doesn’t want to maintain a Lincoln presence there anymore. I recently also read that one of the largest L-M dealers in the Detroit area, Metropolitan, is closing up shop. That was surprising to me.

    Meanwhile, up here in the northern part of the state, at my local Ford-Mercury (now just Ford) store, I see they are sneaking in a few Lincolns on the lot from their tiny Alpena store.

    I just don’t understand how Ford, who seem to be on top of their game these days, just can’t seem to get it right with Lincoln…

    • 0 avatar

      We had exactly the same combo here in Savannah, GA (L-M-Mazda). I didn’t buy my 2005 Town Car there, but it’s where I go for service. And I am trying to think of ANY time I have been there when the sales staff looked remotely busy with customers — either Lincoln or Mazda.

      Right now, it’s great for me because the service staff are VERY attentive, obviously working to retain every customer. There’s a Ford dealer less than a mile up the road, different ownership, and I am sure they know I could take my business there in a heartbeat. We’ll see how long it lasts.

  • avatar

    “I just don’t understand how Ford, who seem to be on top of their game these days, just can’t seem to get it right with Lincoln…”

    It’s simple: they’re not trying hard. Mr. Mulally, rightly, understands that FoMoCo will make more money sticking to their Ford knitting rather than attempting to build a global luxury brand. The old American luxury formula (take a plebian platform, make it softer and more powerful) that worked for decades is dead. Now, to build credibility, Ford’s luxury division would have to spend billions upon billions for a decade or more establishing street cred worldwide. Why not just build more F-150s and Explorers?

  • avatar

    Interesting article. Jaguar Land Rover have a similar situation brewing but for different reasons. JLR is comprised of 3 brand Jaguar, Land Rover and Range Rover. According to JLR’s CEO they plan to force dealers to stop selling Jaguars and Land/ Range Rover’s in the same dealerships. Instead they will ask them to sell Jag’s in 1 dealership and Land/ Range Rovers in another. The rationale is that Jag is about to start building crossovers (amongst a whole load of other cars) which could conflict a bit with Land Rover/ Range Rover products.

    The difference between the situations is that I think the dealers may accept it. All 3 brands will see massive expansion and so a standalone Jag or LR/RR dealer could survive. Lincoln’s problem is one of shrinkage. Time to expand or let go….

  • avatar
    Rick T.

    A bucket of warm spit…plus your trade-in.

  • avatar

    Until last weekend I thought Lincoln was dead brand rolling.

    Last weekend I got together with some of my brothers, and to my amazement they were talking about Lincolns – how nice the interiors were, and how much they liked the styling (no accounting for taste). My brothers have not yet reached 50. Now I’m not so sure Lincoln will die.

    As for me, every time I see a Lincoln I think – Man, that’s a lot of money to pay for a Ford.

  • avatar

    Anybody who still owned a stand-alone L-M franchise when Mercury was shuttered last year was just asking for trouble. And they better diversify quick before Lincoln follows that brand into the hereafter. Might be a good time to snag a Kia franchise since, unlike Hyundai, the few Kia dealers are glorified used car lots.

    My hometown’s Lincoln-Mercury dealer finally went bust in ’09 after changing hands multiple times. But the writing’s been on the wall regarding Mercury for a solid decade and Lincoln’s a dead brand walking, no surprises here. Unlike the local Pontiac-Toyota-Mitsubishi dealer, who’s probably still scratching his head trying to figure out where 2/3s of his business went.

    • 0 avatar

      Lincoln isn’t going anywhere. Ford has shed all of the extraneous luxury brands, Jag, Land Rover, Aston Martin, Volvo, and most recently Mercury. Lincoln is all that is left, and whatever the cost, it will survive.

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