Until the announcement, Ford insisted cashbacks were a better option but they applied only to selected derivatives. The price cuts are across the board (except outgoing Escort and old Mondeo), ranging from 5% to 13.1% and including popular models such as Puma and Focus Zetec which was previously excluded.
There will also be extra trading incentives on slow selling models, such as Cougar and Explorer, to allow dealers to offer discounts.
All Ford derivatives now have a recommended retail price including delivery charge (previously listed separately). Fleet margins have been squeezed, leaving transaction prices at or slightly below the new list.
The price cuts will be paid for by Ford by lowering dealer wholesale prices. “It has cost us a lot of money,” said Mr McAllister. “I'm not going to say how much, but it is a lot of money.”
He believed the price cuts by the UK's market leader would bring “clarity and stability” to the market. The used car sector was likely to firm up as trade guides reacted.
Speaking at the Mondeo press launch in France, Mr McAllister said the previous cashback policy had led to confusion among customers. Cashbacks had been necessary as a short term measure while the company studied the detail of the recent Government Order to increase competition and so lower prices.
“We were sure when the Order came out it was going to be quite complex,” he said. “We had to put something in place in July to run through till September. Most customers buying in September make up their mind in July.”
Ford is also paying the cost of the new three-year warranty and there will be increased bonus payments to dealers based on customer satisfaction after three years. The improved warranty is both a marketing weapon and an attempt to boost customer retention.
Mr McAllister said Ford's warranty costs had fallen “dramatically” over the past few years while longer service intervals were hitting dealer profitability. “Customer loyalty falls off outside the warranty period,” he said. “We want to maintain that relationship with the customer and one way is to keep in contact for longer with an extended warranty period.”
Promoted finance plans, such as 9.9% APR and free insurance on selected models, will stay in place. Ford has not 'unbundled' the packages.
Ford is meeting editors of the used car price guides to explain the new pricing policy. “The 'books' haven't known what carmakers would do on new prices, so they have marked residuals down,” said Mr McAllister. “They have probably gone further than necessary. We hope to stabilise that and see used prices recover.”