It will also be making a major restructure to its dealer floorplan assistance program.
It's no secret that cars such as the Ford Bronco don't get to sit on dealership floors very long before being snapped up. This high demand coupled with the short supply as a result of the semiconductor crisis means that some customers are getting frustrated by the fact that they cannot get into the driver's seats of their desired cars.
Adding fuel to this fire is the fact that certain dealers are taking advantage of this situation by issuing high markups on desirable cars. This is a crisis that Ford is working on resolving by threatening to limit stock to those who conduct these unfavorable business practices. What the situation has highlighted is that there is value in keeping stock on the floor to match the respective market demand.
It's understood that the days of units sitting on the dealership floors are slowly coming to an end as consumers already know what cars they are looking for after researching intensively online. Maintaining a more focused dealership stock has also prompted the CEO of AutoNation to hint that discounts on unsold models sitting on the floor could soon be a thing of the past.
There is a belief that excessively high inventories no longer translate to high profits, while discounts and incentives can damage the prestige of the badge. These two points are key factors that motivate dealerships in maintaining a supply that matches the demand. A bulletin that has been sent out to the Ford dealer network somewhat supports this notion.
The notice that went out on February 28 motivates dealer staff to sell models on the floor as quickly as possible through bonus payments. This "fast turn component" will allow dealers to make more money depending on how quickly they can sell stock. At the same time, it will be revising its dealer floorplan assistance program (FPA) so that fewer units are returned by the dealerships.
From March, if a car is sold in less than 15 days, the dealer will earn a $250 cash bonus. This decreases to $150 for 16 to 30 days and $100 for 31 to 60 days. After this time, there will be no bonuses paid. This is a great opportunity for hard-working dealers to make some extra cash but the FPA adjustment is what throws a real spanner in the works.
The FPA is a line of credit that a dealership can extend for new stock to be added to its floor. If stock purchased through this program doesn't sell after a set period, they can return it to the manufacturer after paying a small fee. The line of credit is resolved as the dealership sells the stock off.
Ford's restructuring of this program will now only offer reimbursements for cars younger than 75 days. It explains, "The current FPA program was built to serve a business model based upon high inventories, but Ford's ongoing efforts to reduce complexity and keep dealer stock at manageable levels requires that the program be adapted to this more dynamic approach."
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