Many people do not understand the difference between dealerships and car companies. Most see them as the same. If you go to a Chevrolet dealership, they are Chevrolet to most people. The truth is, this is a misconception.
It is true, they have a business relationship. However, they are two separate businesses, and should be treated as such. Let’s look at the basic differences, in real-world terms.
Auto manufacturers manufacture cars. They have one customer only, and that is franchised new car dealerships. Their job is to build the best cars possible, so that dealerships can sell them. The dealerships order cars from the factory every month, usually for delivery 60 days or so in advance. The dealers have no idea what incentives the factory will offer so they are somewhat in the dark. Under ordering, or over ordering can cripple a dealership financially. It is a difficult balancing act, to say the least.
So Ford decides to announce “Friends and Neighbors” pricing on all their vehicles starting in early November. It was to run through the end of the year, but has just announced it was going to end on November 30th.
What went wrong? Auto manufacturers set the price dealers pay for cars, and they also set the price on the window sticker, commonly known as the Manufacturer’s Suggested Retail Price (MSRP). Ford, in its latest promotion, then tried to set the transaction price as well. The problem is, people did not perceive that to be a good price, even though it was the same price Ford associates and suppliers pay. The other mistake they made was pulling back on the rebates because they were paying the dealer a small commission for each sale.
The dealers were not allowed to go over the “Friends and Neighbors” pricing, but they could go under it. The only problem was, they couldn’t afford to do so. This pricing averaged less than $150 over dealer invoice. Consumers wanted to start their negotiating at the marked price, and the dealer had no room to move, so their customer left, and went to a different brand.
Dealers accept the manufacturers setting the price on the window sticker, and the price they buy the cars for. That is just part of the franchise system. However, when the automaker sets both those prices, and also the sale price to the public, it is a disaster. Hence the ending of this promotion after only a few weeks.
Automakers and dealers have very different functions. It is the free market that saves consumers money, it is the competition between dealers that have kept vehicle prices low. That is what makes the franchise system work.
Frankly, I knew this promotion by Ford would fail from the beginning. Dealers had no choice but to go along with it. They were forced to agree to the pricing, and consumers just didn’t buy it as the best deal.
Hopefully Ford, and other automakers who have followed this program’s failure, will realize that their job is to build the best vehicles possible, price them fairly, and let the dealers do what they do best-sell cars.