Ford's Future Through The Eyes Of South Carolina Dealers

In early December, Ford released that the previously reported $18 billion borrowing limit was increased to $23 billion.  As a part of this multi-billion dollar deal, Ford was forced to include a substantial amount of its domestic automotive assets, stock and up to $4 billion in cash as collateral.  The recent addition of $5 billion to the borrowing limit required the company to add its investment in the Mazda Motor Corp. to the list.  Ford has never been forced to put up this much collateral to secure financing in the past, so many believe it is a serious indication of their state of affairs.

The financing will cover:  A new $10.5 billion to $11.5 billion senior secured revolving credit facility to replace existing unsecured credit facilities.  A senior secured term loan of approximately $7 billion.  Unsecured capital market transactions of approximately $4.5 billion, which includes unsecured notes convertible into Ford common stock. 

O.C. Welch III, dealer of OC Welch Ford Lincoln Mercury in Beaufort, S.C., said of the large amount the company will borrow, “It’s very risky, and I just feel like there are so many things they need to do that have not been addressed yet.” 

Primarily, he believes Ford needs to get rid of the products that are not “mainstream” in the United States and realistically adjust the price of new vehicles.  “They’ve got to stop the bleeding.  They’ve got to get rid of Jaguar and Land Rover and get more into what makes them money – get reconnected with their customers.  So many of their customers have left them.” 

He added, “They’ve got to get real with how they build a car, how they price a car and how they deliver a car … Who’s going to buy a Crown Victoria that has a $30,000 sticker price that’s worth $15,000 12 months later?”

The Ford Motor Company does not anticipate an overnight change.  It expects to remain in the red for a few years.  2009 is targeted as the year for the company’s financial comeback.  To help ensure a financially sound future, the company is taking other steps to make up for record losses. 

Ford plans on eliminating about 15 percent of its dealer base, or roughly 600 dealerships.  Because it is unlikely that they will eliminate that many dealerships through attrition, they will have to consider cash buyouts.  Not every dealer is excited about that prospect of being bought out by the company.  Many have invested their lives and the livelihood of their families in these dealerships.

Welch doesn’t believe his market will be a target because it isn’t oversaturated with dealers.  Nor does he believe that eliminating 600 dealerships will solve any significant financial problems of the company.

Gregory Coleman, owner of George Coleman Ford in Travelers Rest, S.C., thinks weaker Ford dealers will work themselves out of the market without the help of Ford.  “Typically, the way our systems works is if you’re weak, you’re going to go away … It seems doubtful to me that they’re going to target dealers to get rid of.” 

Coleman worries about his children’s future.  His children, ages 15 and 11, have both expressed interest in possibly filling their father’s shoes one day, but he worries that option won’t be available to them.  And, if it is an option, he hopes it will be a profitable option.  “It would be a shame if there was no George Coleman Ford for them [the children] to have the opportunity to decide if they wanted to be a part of or not. I could see that being a possibility – not because of anything we’ve done, but because of Ford Motor Company.”

Although business has been better at George Coleman Ford in the past, this dealer, his employees and his business haven’t suffered to the point that he’s had to look to other brand names or profit centers to supplement income.  He admits he would look at other franchises—but only if he had to. 

Coleman, a third generation dealer and member of the Carolina Ford Dealers Advertising Association (FDAA), feels the company needs to make products that excite people.  “They’ve done it before,” he said simply.

At an FDAA meeting Coleman heard about Ford’s Bold Moves Campaign initiated in 2006, and at the meeting he made a bold statement of his own:  “If you’re going to talk about ‘bold moves,’ let’s do something.  Let’s not use it just as a slogan.  Let’s really make them happen.”  He questioned why Ford is always following instead of leading.  He acknowledged that the Ford Fusion created some excitement and hopes the new Ford Edge will do the same.  Recently, he saw a new Mustang model online, but before he could get excited about selling the new product at his dealership, he discovered that only a few were being manufactured.  He was hoping to see something like that mass produced.

Welch, who was a senior member on the Ford Product Committee until last year, was in agreement, “They don’t build products consumers want.”  He admitted Ford will probably not have another Taurus – and by that he means another vehicle that sells over 400,000 units in a single year.  He said, “The stuff we have today, they’re good cars, but they’re not what the consumer is expecting.” 

Welch is taking some steps of his own to secure his financial future.  He is building a brand new facility to combine two of his new car dealerships into one, and he has sold a third franchise dealership and two used vehicle dealerships. 

According to Welch, before Ford can get back to par, the company will need to initiate and foster a better working relationship between the company and dealers.  Dealers are kept in the dark too much.  “They don’t really share with us what they should be sharing. They’ll sit there and let you have 200 percent of what you should have on the yard trying to sell this stuff … They’ll let you load up your lot when they know you can’t sell it and you know you can’t sell it.  Then, you sit there and lose money and bleed to death.” 

Welch admitted his stores are underperforming and that Ford is not the only one to blame, but he thinks Ford could help by making deals easier to complete.  “It takes too long to get a price; it takes too long to deal with all these unnecessary incentives.”  He also believed the franchise needs some “bling.”  He said, “If you go look at the stuff they’re building today, none of its classic.  None of it will be a classic.  It’s just so much blah.  We need some bling; we don’t need any blah.”

As another attempt to reconcile finances, Ford is offering voluntary buyouts to factory workers.  The offers must be enticing – unless workers are opting for them in fear of worse consequences – because just under 40,000 factory workers have accepted an offer. Different buyout options include early retirement, money for school for the employee or other family members, and of course, a lump sum payment.

For some, early retirement is more appealing than an uncertain future, while for others, money for higher education is alluring.  If employees don’t qualify for the retirement options and aren’t interested in college funds for themselves or their family, they can choose “special termination of employment” and receive a lump sum of $100,000.  Those who don’t choose the buyout risk being laid off because Ford plans to close the doors of six plants in the United States.

As bleak as the next few years may look for some Ford dealers and employees, Ford will likely pull itself together.  There is just too much at stake.  Welch may have summed it when he said “You can’t always be what you were.” However, you can be better if you choose to be.  Only time will tell if Ford has chosen the correct financial steps to secure its future.

Vol 4, Issue 1