Ford has introduced the most radical change to its pricing policy in almost four decades.
It has abandoned high list prices and high discounts, in favour of reducing list prices and cutting discounts by a corresponding amount.
Transaction prices will be unchanged, but cust-omers will see list prices fall by up to 12%, which typically means £2,500 to £3,500 off a large car.
The decision will have a major impact on Ford’s dealers who will not only carry some of the cost of the manufacturer’s decision, but will also undergo new training to shift their sales focus away from discounts.
“We want dealers to sell what’s on the car not what’s off it,” said Ford UK managing director Nigel Sharp.
“A huge training programme involving all salesmen will start next month.”
The new ‘Blue Tag’ pricing policy, which initially affects Mondeo, S-Max and Galaxy, but will eventually be rolled out to all Ford’s cars, will see dealer discounts and margins hit.
“Dealer margins are down, but what a dealer sells a car for is still up to them,” said Sharp.
“We have reduced the headroom for dealers, but we have to provide sufficient margin for dealers to operate.”
The decision to bring list prices closer to transaction prices was only taken after “lengthy discussions” with Ford’s 550+ dealers.
Ford argued that its previous pricing structure was losing potential customers.
“The retail buyer looked at the list price and didn’t go any further,” explains Sharp. “In the world of car comparisons, we were very often judged on list price.”
It was also having a negative impact on Ford’s fleet sales, which account for 70% of its large car sales, because benefit-in-kind tax is calculated on a car’s list price, not the price a fleet actually pays.
The risk of such a dramatic change of policy, if done badly, is harming residual values.
To counter this, Ford and its dealers must be absolute in their conviction that they will not return to heavy discounting.
“Provided we do what we say we will do, we will reaffirm residual values,” said Sharp.
Ford is also investigating how to ensure its dealer demonstration cars are high spec models so salesmen can show off new technology.
“We need to find an economical way to get high-spec Christmas tree demo models into dealers,” said Sharp.