Ford is losing dealers’ trust...and fast

Hey, everyone. Did you see the new electric minivan Volvo unveiled this week? The $114K EM90 (which Volvo is calling the “Scandinavian living room on wheels”) seems to have divided Twitter. What do you think of Volvo’s first expedition into EV minivans? Who do you see driving a model like this? Hit reply and tell me your thoughts.

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—CDG

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Today’s Biggest News

Why Are Dealers Losing Trust in Ford?

The auto industry’s most important currency isn’t dollars or barrels per day or utilization rates—it’s trust. Buyers have to trust dealers and lenders, dealers have to trust manufacturers.

So how come dealers are expressing a significant lack of trust in one of the biggest and most impactful auto manufacturers in the world—Ford? Let’s dig in.

The data →

A recent survey of dealers from Kerrigan Advisors found some interesting truths about the industry: 52% of dealers anticipate that 2023’s strong valuations will continue into 2024. 47% of dealers project earnings will stay the same in 2024, likely as a result of post-pandemic normalization. But the most interesting stat of all?

Compared to 2022, there was a reduction in the percentage of dealers who think any given franchise will increase in value in the upcoming year. Translation: Earnings are declining.

But here’s the thing—it’s not just earnings. Some dealership franchises are facing severe “multiple compression.” Multiple compression is a fancy term for when an asset loses value faster than the decline in its earnings.

Why would this happen? Well, one reason is a lack of trust in car manufacturers…

And no manufacturer is losing trust as quickly as Ford, the sixth-largest manufacturer in the world by sales with a $42 billion market value. According to Kerrigan’s findings…

• 46% of dealers expect Ford to decrease in value over the next year.

• 48% of dealers said they had no trust in Ford.

The reasoning →

So what has changed at Ford in recent years to cost it so much goodwill with dealers? I’ve got a few ideas given some conversations I’ve had this year:

1. Management. Dealers have told me about a lot of lingering uncertainty with Ford, which has lacked clarity in explaining the direction of the company to the people selling its cars. In the spring, Jake Lebowitz of Raceway Auto Group in New Jersey told me why he won’t touch a Ford dealership these days: “If I can’t trust that the upper management is going to take care of the dealer, how can I invest our hard-earned dollars into that brand?”

2. Sales changes. Dealers are wondering whether Ford might change its retail strategy to go direct-to-consumer with its electric models, potentially cutting dealers out of the process entirely (if the murmurs on lots are to be believed). With that, Ford has been accused by some dealers of “anti-dealer profit campaigns.” When I asked Ford CEO Jim Farley about his reputation with dealers on Twitter Spaces in May, he gave me a pretty flimsy answer—makes sense why dealers are looking for more.

3. EVs. Dealers have questions about the way Ford is chasing after EVs and widespread electric adoption, especially given lackluster consumer demand. Dealers have expressed frustration that EV price cuts were required to keep pace with Tesla—even after dealers had to invest heavily in the requirements to sell EVs on their lots. Still: As of October, Ford had lost $3.1 billion on its EV spending this year.

All that uncertainty weighs heavily on dealers’ expectations about profitability:

Bottom line: Consider Toyota, which was the most trusted by dealers in the survey and scored 17 percentage points higher than its nearest non-luxury competitor, Subaru. Toyota also has the highest blue sky multiple of all non-luxury franchises.

What sets Toyota apart? Despite inventory challenges over the last few years, it’s been forthcoming to dealers about its departure from the rest of the EV crowd—it believes EVs are the future, but it’s taken a more measured approach to rolling EVs out on lots and relied on hybrids to smooth out the transition. That’s what makes a manufacturer trustworthy in the eyes of a dealer…and I hear it all the time—dealers are manufacturers' best customer and best source of growth.

This Week’s Episode of the CDG Podcast

This is what it’s really like to run a dealership these days. Keeping business humming along means taking risks, making smart decisions, raising capital from the most unexpected places, and getting creative about where and when you find yourself on a cap table. I got the full rundown from Bruce Miller, owner of Miller Motors. The feedback so far?

Listen to the episode here, and subscribe to the CDG Podcast on Apple, Spotify, or wherever else you get your podcasts. And thank you to the sponsors of this CDG Podcast episode: Cars Commerce and Podium.

Together With Cars Commerce

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In Other News

The Strike Is Over…Or Is It?

It was only a couple weeks ago that the UAW reached a tentative deal with Detroit’s Big Three automakers, putting an end to the weeks-long strike that halted production at some of the country’s biggest and most important auto plants. But this week, we got a look at some of the ripple effects of the strike, even with a labor agreement that provides double-digit raises in motion.

The headlines:

• Stellantis is offering buyouts to 6,400 salaried employees. Workers with at least five years of seniority are eligible for the buyouts.

• GM workers might not see landslide approval of the labor deal. More than two-thirds of workers who voted at GM's plant in Spring Hill, Tennessee, were opposed to the agreement, the UAW said. FYI, that plant was the UAW's final strike target against GM in late October.

• President Biden said he wants all auto workers to get contracts like the UAW’s. “I have a feeling the UAW has a plan for that,” Biden said. He also said Toyota “had no choice” but to raise wages for US hourly workers because of the UAW deal.

Overheard at the Dealership

I recently got this message from a reader: 

“Hey man, I’ve been with CDJR for 12 years. 2 selling, 5 finance, and 5 at the desk now. My point of reaching out is I’ve never seen prices so high on these vehicles. All of our referrals, family, friends are basically priced out. 

Is there a future with this brand? It’s all I’ve known my whole life. Business is so bad I almost want to get out of the car business. How do they get out of this mess? My only answer is they have to literally lower all their prices 30% like they were in 2015–2020. $35K for Wranglers and $45K for Grand Cherokees. Paying $65K–$85K for a GC is asinine. You might as well go buy a luxury brand. What are your thoughts?”

So I did what CDG does. I got some context from a friend and the CEO of Morgan Auto Group, Brett Morgan. Here’s what Brett had to say: “Stellantis has been a brand guilty of raising costs and slashing dealer margins and they’ve suffered from some poor product quality with some product lines. Because they choose incentives rather than price cuts as a way to level the playing field, the end consumer isn’t always in “the know” on the best deal.”

What do you think? Hit reply and let me know.

Have unique insights into the car business? Shoot me an email or DM on X/LinkedIn!

The Backlot

• Forge Nano, a materials science startup that makes EV batteries, is planning to build a $165 million factory in North Carolina by 2026.

• Rivian lost $30,648 for every vehicle it delivered in Q3, a 6% improvement over Q2.

• The latest on the vehicle-to-infrastructure front: The US Department of Transportation suggests that 12% of potential vehicle crash scenarios could be avoided using so-called V2X tech.

• Trucks and SUVs with hood heights greater than 40 inches are about 45% more likely to cause fatalities in pedestrian crashes than shorter vehicles with sloped hoods, according to new IIHS data.

• Contrary to what the internet initially thought, Tesla actually won’t sue anyone who tries to resell a Cybertruck.

• The right-to-repair movement wins big in Maine—voters were largely in favor of allowing manufacturers to enable owners and their preferred mechanics to access their car’s diagnostics systems.

That’s all for today—thanks for reading. I’m sending you a special edition of the CDG Newsletter next week to celebrate Thanksgiving. Want to be featured in our next send? Hit reply and tell me what you’re grateful for. See you soon. ✌️

—CarDealershipGuy

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