Ford to offer generous compensation to dealers

Ford, which announced its exit from the Indian market in early September 2021, has agreed to compensate its dealers in India over the next few years for the potential of lost sales and service work. It is understood the  compensations are sizeable. While the carmaker had already assured customers of continued support for service, parts and warranty, specific details are just beginning to emerge.

Ford has now confirmed to Autocar India that “more than 90 percent” of its dealers will continue their service operations, and “for the rest 10 percent (of dealers), the discussions are continuing and not concluded”. As such, Ford’s service network will have a presence in “greater than 240 cities, compared to the present count of 258 cities”.  Furthermore, Ford customers assured of service for the next ten years. The service operations will continue in 240 cities, out of the current 258 cities.

What’s in store for Ford vehicle owners?
“A significant majority of our dealers have signed up to the Dealer Service Agreement which ensures that our customers will continue to have a Ford dealership to service their vehicles,” said Vinay Raina, executive director, Marketing, Sales and Service at Ford India. However, the statement from the company does add, “We do anticipate a small reduction in the number of dealers in a few cities.”

Ford has tied up with dealers to service the existing car parc for the next ten years. According to a source in the dealer fraternity, “Ford has also locked in all the part prices (for five years)”, which means that the cost of consumables and spare parts for vehicle owners will remain constant for the next five years.

The OEM has already produced an inventory of components and stocked up its parts depots in Delhi, Chennai, Mumbai, Sanand (Gujarat) and Kolkata.  All of this should come as a relief forexisting Ford customers after its shock announcement of ceasing vehicle manufacturing and sales in our market.

What’s in store for Ford dealers?
Ford, which has been locked in negotiations with its dealers, are apparently being paid their full margin. “Let's say, a dealer usually sells 200 vehicles, and the dealer margin is Rs 60,000-70,000, along with incentives. With sales no longer happening, the company will pay the dealer Rs 1.4 crore (that is, Rs 70,000 for each of the lost sales of 200 units). a Ford dealer source told Autocar India.

The source added that the total amount will be paid in installments “every six months”. “Over a period of four years, dealers will get all their money,” commented the source. The calculation of lost sales for each dealership will be on the basis of its average sales in the last 14 months.

But each of those lost sales would have also generated revenue in service and spare part sales for the dealer. This is something that, too, has been considered in the settlement. For the next five years, Ford will pay a dealer “whatever he would have lost. Let's say, a dealer’s sale is 50 vehicles a month. Over the next 60 months, the company will pay Rs 4.5 crore (that is, Rs 15,000 for each of the 50 vehicles for 60 months),” said the source.

As time passes and Ford’s vehicle parc in the country reduces, service business is bound to decline. Giving further insight, the source mentioned, “Between now and the next five years, every year there will be a reduction of 10 percent in a dealer’s service load.” This is yet another factor the carmaker has agreed to compensate the dealer fraternity for.

With such generous compensations, most of the dealers are expected to accept the company’s terms. “I think 99 percent of them (dealers) will be okay,” said our source. He continued, “Ford has been very fair to its dealers.” “I don't think any manufacturer in the country will be as good as them.”

Giving Ford’s perspective, Raina said, “The principle of compensation - developed with a dealer select committee - included facility size, business history, performance on both sales and service, appropriate stock as well as de-growth assumptions. The intent was to be fair to dealers and also ensure they remain committed to serving our customers,” explained Ford’s Raina.

Reports suggest that Ford is expected to spend around Rs 5,000 crore on its exit from the mass market segment in the country. Some of the amount has been earmarked for dealer settlement, in addition to compensating other entities like suppliers and employees. The capital will also be used to chart the company’s future business plan in India.  

As we have already reported, going forward, the American automaker is looking to introduce high-end, imported models in our market, albeit through a smaller retail network. Ford India has already confirmed the launch of the Mustang Mach-E and a return of the Mustang GT, and it is also hoping to bring in other electrified models down the line.