Ford Motor Co.'s move to split its legacy internal combustion engine and growing electric-vehicle businesses into separate units means drastic changes for its network of some 3,000 U.S. dealers — changes that are prompting both concern and optimism as both sides begin to hammer out details.
In the coming months, the Dearborn automaker says it will work closely with dealer committees and the Ford National Dealer Council, as well as embark on a market-by-market tour, to draft a new set of standards giving dealers the choice to decide whether they want to be EV-certified as Ford targets annual production of 2 million EVs globally by 2026.
Specifics remain under discussion. Still, the transition for those who do opt-in will mean investments in facility upgrades and employee training; changes in the ways dealerships interact with customers as Ford embraces a more digital and remote shopping, buying and service experience; and expertise in a new portfolio of vehicles with major differences from their combustion engine counterparts.
Since the restructuring announcement earlier this month, dealers tell The Detroit News they're generally on board with the coming changes. But they have concerns about how EVs will be priced under the new standards, what their profit margins will be, and when they'll reap the benefits of the investments they're prepared to make — especially as production constraints and the particulars of the allocation formula for EVs mean some may not immediately have many EVs to sell.
“The real question comes in — do I want to relearn a new business and a new business structure, and what happens with this one price (proposal), and how do dealers sell these products in a way that would allow them to be able to take care of the customers and generate enough income to satisfy some of the customer satisfaction requirements and the things that we do today?" said Doug North, owner of North Brothers Ford in Westland. "The mechanics of that electric side of the business are still very cloudy.”
ICE-EV split
Earlier this month, Ford announced a significant change to the way it operates. It is separating its ICE and EV businesses into distinct units that report financial metrics separately but nonetheless collaborate in some areas. The new divisions, respectively, are called Ford Blue and Ford Model e.
The news caught some dealers off guard, initially stoking anxiety. A closed-door franchise dealer meeting at a National Automobile Dealers Association event in Las Vegas reportedly drew a standing-room-only crowd of dealers wanting to hear more from Ford executives about how the move would affect them.
But since then, some dealers say they've been relieved to hear Ford leaders' assurances that the company sees the dealer body as a strategic advantage in the electric and digital transition, even as startups like EV heavyweight Tesla Inc. lean into direct sales.
"In an industry where a lot of people are saying, 'We want to get out of the dealer model,' we actually are doubling down on our dealers," Andrew Frick, vice president of sales, distribution and trucks for Ford Blue, told The News in an interview. "They're going to play a very critical role as we move forward in our growth plans and in the way we want to set up the customer experience."
Ford CEO Jim Farley said as much, too, during a news conference earlier this month detailing the restructuring: "Our message to the dealers is, 'we're betting on you.'"
Ford studied market research metrics on Tesla and found that Ford begins to outpace the EV maker once customers start to experience issues with their vehicles, Farley told The News at the time.
Market research firm Escalent recently conducted a study about what future EV buyers want from the experience. Somewhat surprisingly to researchers, respondents indicated they wouldn't want to lose any aspects of the traditional dealership model — though there are areas they want dealers to improve.
“It’s not a ringing endorsement for the status quo. Dealers absolutely need to adapt," said Mike Dovorany, Escalent's vice president of automotive and mobility. "But we did not find any aspect that a traditional OEM could basically adopt large parts of a more Tesla, direct sales approach without alienating a substantial number of their customers, even when it relates to electric vehicles.”
Redesigning the customer retail experience will be one of Ford Model e's missions.
"We believe that our current experience is not competitive with Tesla, and to beat Tesla, which is our ambition, we’re going to have a dedicated team in Model e to go digital, remote, no inventory — all the things that Tesla does well," Farley explained. "But we’re going to add on top of that, some experience that Tesla doesn’t give.”
That's where the dealer network comes in.
Changes coming
Ford will continue to have a single sales and service agreement covering dealers across product lines, Frick told The News. But, with input from dealers, the automaker is now in the process of drafting new EV certification standards.
The company has started engaging with dealer committees and has a dealer council review scheduled for this week. By July, Ford executives expect to communicate the new experiences and standards to the entire dealer body. By late August, Frick said, dealers will be able to opt into the new standards.
Nothing has yet been determined, but Frick acknowledged that a one-price model for EVs is under consideration, based on customer feedback and data. That would require dealers to offer a set, non-negotiable price on EVs.
Meanwhile, EV-certified Ford dealers would be expected to make some level of investment, though the specifics and likely investment requirements remain undecided.
"What we want to do, first, is focus on the experience that we desire, and then, yes, there will be significant training for that," Frick said. "There will be investment in processes, potentially people dedicated to BEV. We want to make sure that it's less about pure brick-and-mortar and more about, are we setting the customer up for success? Remote services is likely going to be associated with that, so that doesn't necessarily require more facility."
In terms of training, Frick said Ford already has launched an EV program in the last few weeks. Training for salespeople, technicians and other dealership staff will be a major area of focus this year and next.
Ford would like to see dealers offer options like mobile service, pickup and delivery, and remote test drives, he added. And the low inventory dynamic of the last two years has informed the automaker's goal of operating with less inventory going forward to generate efficiencies.
"If they were to shift to an EV model that is predominantly factory orders, those dealers could potentially significantly reduce their operating costs by shifting to a smaller showroom, smaller real estate," Sam Abuelsamid, an e-mobility analyst at Guidehouse Insights, told The News following the restructuring announcement.
Some of the changes Ford executives are considering include things dealers have grown comfortable with over the last couple of years amid the coronavirus pandemic and various supply-chain disruptions.
"The fact that we’ve dealt with having such low amounts of stock on the ground and the fact that we’re up to approximately a third of the vehicles that we deliver now in the Ford dealer body are delivered off of retail orders, that has already spurred us in a large way in the direction that (Farley is) talking about," Tim Hovik, chairman of the Ford National Dealer Council, previously told The News.
As part of this transition, Ford is not necessarily looking to consolidate its dealer footprint like some brands have. Instead, it will consider such rationalization on a case-by-case and market-by-market basis, said Frick, who added that he's spoken to dealers who already have decided they want to stick with ICE vehicles.
"That's fantastic, because we can grow our business with them, with those key areas," he said. "The beauty of our plan and having a balanced portfolio of ICE and BEV, and Ford Blue and Ford Model e, is we have a solution for a lot of different network needs and we can be healthy across the board.”
Dealer concerns
North, of North Brothers Ford, said his initial reaction to the ICE-EV split was concern, but he feels reassured after hearing from Ford executives and learning that dealers will be able to sell both ICE vehicles and EVs. He plans to opt into the EV standards despite a for-now-undefined investment requirement because he sees the industry and consumers moving definitively toward electrification.
Still, he has some unanswered questions: namely, what will the financial model look like, and what role will dealers play in the distribution process?
"I remain hopeful, because it's our belief we add a lot of value in the process now, and certainly from a competitive standpoint, we believe the dealers offer something that Tesla doesn't," he said.
Another concern: How long it will be before his dealership sees the benefits of its EV investments because he doesn't expect to sell a large number of EVs for years to come. EVs still make up a "very, very small portion" of North Brothers Ford's overall sales, and North doesn't expect to get many F-150 Lightnings immediately following the launch this spring of a battery-electric version of America's best-selling truck.
Ford is required to allocate a certain percentage of its EVs to states such as California that are part of a zero-emission vehicle program, potentially siphoning vehicles away from markets in the heartland.
That issue is also a concern for Rhett Ricart, owner of Ricart Automotive Group in Columbus, Ohio. Ricart told The News he has hundreds of Lightning reservations but only expects to get about a half dozen this year.
Still, he has already decided he'll become EV certified by Ford. In his view, dealers are ready and willing to invest some of the record profits they've earned in the last couple of years into electrification but may be questioning when their investments will pay off.
"The automobile dealers are all in on BEVs. We can all go do it," he said. "But we've got to kind of know how many we're going to get."
Asked about some dealers' concerns about the allocation formula for F-150 Lightning, Frick said that Ford is dealing with demand that "far exceeds our first-year capacity." But the automaker already is moving to significantly boost annual production capacity to 150,000 units by next year.
"So in some of the other states, they're going, 'I see very minimal production in the near term,'" Frick said. "That's true in the near term, but that quickly ramps up, even starting next year. It will change very quickly. It will become far less of an issue as we ramp up our BEV volumes."
