Ford Motor Co. is moving forward with new standards governing how its retail network can sell electric vehicles amid some pushback from dealers — even as experts say the success of the EV strategy partly will depend on how the rollout goes.
The Blue Oval in September unveiled the new EV standards to its network of some 3,000 U.S. dealers at an annual meeting in Las Vegas. The program is structured in tiers and, for dealers that want to sell EVs, includes investment requirements to install on-site EV charging infrastructure and new stipulations like no-haggle pricing.
Some dealers have indicated they're on board with the program, which runs from the start of 2024 through the end of 2026. But others have raised concerns about the amount of spending required to install chargers, how they'll recoup those investments, how the program will affect their profit margins, and whether the program flouts state franchise laws that require legacy automakers to sell their products via dealers in many states. EV startups, led by Tesla Inc., meanwhile, can sell their vehicles directly to consumers.
“If you’re going to have a plan to ask us to invest a ton of money, a ton of training, a ton of time, then shrink our margins on the other end while you’re making greater margins — that’s where the dealer body is pushing back," Scott Kunes, chief operating officer of Wisconsin-based Kunes Auto and RV Group, told The Detroit News. Kunes Auto Group has more than 40 stores selling numerous brands across the Midwest.
"We all agree with the basic premise," Kunes added. "We have to do a better job with the consumer experience. We have to do a better job from a manufacturer level to a dealer level. But we feel like Ford is trying to dictate this, rather than be a partner in this."
And state dealer associations in at least 13 states — including North Carolina, Pennsylvania and Virginia — have spoken out against the proposed changes, Automotive News reported.
Meanwhile, Ford said in a statement this week that it's sticking with a Dec. 2 enrollment deadline and with its plan to implement the program as laid out to dealers in September. Ford has declined to detail how many dealers have enrolled to date — and at what levels — until after the deadline next month.
"We continue to work with our dealers and provide updates on creating an exciting, profitable future for our dealers and Ford with the customer at the center of everything we do. As is the case with any program developed and designed by Ford, we will comply with applicable laws," company spokesman Martin Günsberg said. "The program is a voluntary program for Ford dealers. Individual dealers need to determine when and whether to enroll based on their individual market and its EV readiness."
What the program requires
Following an internal restructuring initiated earlier this year, Ford now has three primary business units dedicated, respectively, to the internal-combustion engine business, EVs and software, and commercial vehicles: Ford Blue, Ford Model e and Ford Pro.
At issue are new standards for dealers that want to sell EVs under Model e. The program gives dealers three options for the 2024-26 period: They can opt not to sell EVs. They can become EV certified, but with a lower investment level and a limit on their EV allocation. Or they can become "certified elite," going all in on selling EVs. Another enrollment window will open in 2027.
Certified dealers would be required to invest about $500,000, primarily to install one public-facing fast charger at their store. They would not have EVs in stock, but rather would be restricted to build-to-order sales for "loyal" customers. They would not be represented on Ford's website for Model e, according to a presentation Ford released on the program.
"Certified elite" dealers, meanwhile, would be required to invest up to $1.2 million and install two on-site fast chargers. They'd have demo units on site, "access to rapid replenishment from Ford," according to the presentation, and would be represented on Ford's website — with non-negotiable pricing.
"Our message to the dealers at this very special moment is that you have a choice to make," CEO Jim Farley said in September when the program was unveiled. "We're betting on the dealers. We're not going to go direct. But we need to specialize."
Farley and other Ford executives have publicly touted the company's dealer network as a strategic advantage over legacy competitors and EV startups alike, citing its scale — some 96% of automotive customers live within 20 miles of a Ford dealership, according to the automaker — and the service capabilities that brings.
Still, executives have said that changes to the company's sales model are needed. Model e aims to establish a more efficient sales model to address an estimated $2,000 per unit cost advantage Ford says it has identified among some of its competitors. Those efficiencies, according to the automaker, will be driven by e-commerce and digital opportunities, reducing ground stock, a rapid inventory replenishment pilot, reduced product complexity, "tightly managed" marketing investments and "evolving" dealer margins.
The updated dealer standards have new requirements in five areas: training, charging, e-commerce, physical experiences and digital experiences. The training component includes the addition of specialized EVs teams across sales and ownership and an "EV University." The certification levels require different levels of investment by dealers, mostly related to charging infrastructure.
By law, dealers have the authority to set vehicle pricing. But under the new standards, Ford is requiring certified elite Model e dealers to maintain pricing consistency and to sell EVs for the initial asking price. The company has said it has data indicating that customer satisfaction drops by 57 percentage points when customers have to negotiate over price.
The program also envisions changes to the retail experience around remote offerings such as pickup and delivery and mobile service.
Ford initially set an Oct. 31 deadline for dealers to decide whether they would opt into the 2024-26 enrollment period, but last month, the company said it was extending the deadline until early December to give dealers additional time to decide.
Why some dealers are concerned
Automotive News reported earlier this month that dealer associations in at least 13 states pushed back on Ford's proposed changes, in part because they believe the Model e standards run afoul of state franchise laws.
For example, the Southern Automotive Trade Association Executives, which represents 12 state dealer associations, argued that the program "fails to make all vehicle models available to dealers on comparable terms and fails to allocate equitable quantities of EVs to Ford franchised dealers relative to their assigned market areas," according to Automotive News.
The Detroit News reached out to several state dealer associations but did not hear back.
Meanwhile, Kunes is not involved in any efforts at the state dealer association level to get Ford to rethink elements of the program, but he expressed similar concerns. He criticized Ford's approach to electrification and said he believes brands like Toyota have done a better job of managing the transition with their dealer network.
“Ford’s asking us to make a very large investment without having any kind of plan of how we’re going to recoup that investment in the future," he said.
He said he is concerned that Ford is attempting to push out dealers, and expressed distrust in Ford's public stance on its dealer body. He also thinks the program will have a detrimental impact on smaller dealerships in rural areas, and he questions the up to $1.2 million investment for dealers that opt to become certified elite. Kunes Auto Group will enroll some of its stores as certified elite dealers while holding off on others.
Edgar Faler, a senior industry analyst at the Center for Automotive Research in Ann Arbor, pointed to the numerous other headwinds dealers are facing right now. They include a looming new set of regulations from the Federal Trade Commission, which CAR's research indicates could result in added costs for dealerships, as well as continued inventory challenges and signs that the market is softening amid rising interest rates.
"You put all those things together and you can kind of understand why dealers are reacting," Faler said. "Costs are going up for dealers, and for everybody in the automotive industry, with labor costs, inflation. And I think that's some of the reluctance, pushback from dealers — or at least hesitation — is to say, hey look, those things are competing with the investment requirements that are being asked of them."
From a consumer perspective, the new EV standards are "not quite as big a win as Ford seems to think that they are," said KC Boyce, who heads up market research firm Escalent's EV Forward group. He cited recent Escalent research that suggests car buyers actually view the traditional retail and service model favorably.
"Certainly there is appetite for customers to learn more about vehicles and incorporate digital and online experiences as part of their purchase process," he said. "But customers really overwhelmingly want to be able to go to a dealership, to see the vehicle, to touch the vehicle, to drive the vehicle — and those are all very influential in terms of their purchase process, and you just can't replicate that in an online experience."
And, somewhat surprisingly to Escalent researchers, recent surveys have indicated that car buyers actually want to haggle on price — which Boyce posited could be because negotiating makes consumers feel like they're getting a good deal.
As for the requirements around installing publicly accessible EV chargers at dealerships, Boyce said that will come down to execution. If EV drivers can't access the equipment during certain hours or encounter faulty equipment, it may not be a win for Ford.
Escalent's research does suggest that customers want some aspects of the car-buying process to be conducted online — but Boyce stressed that being flexible and providing consumers with a range of options will become even more important in the electric age.
Meanwhile, expect investors to be watching closely to see if dealers buy into Ford's EV strategy — measured in part by how many ultimately enroll in the Model e program.
"This is a game of high-stakes poker for Ford. The dealers are the hearts and lungs of the Ford ecosystem. And ultimately, success of EVs will be heavily reliant on the implementation of this program," said Dan Ives, an analyst at Wedbush Securities.
"If there's major speed bumps coming out and they have to ultimately do some U-turn, it would be a black eye," he added. "And I think 2023 is such a key year for EV inflection in the United States, getting buy-in from the dealer network of Ford — it's what I view as sort of the linchpin to the EV success."
