Following Ford’s restructuring of its pricing policy, its new S-MAX and Galaxy, and revised Mondeo have seen residual values improve by up to £1,275.
The RV increases over three years and 60,000 miles reflect enhancements on the large car range, including styling refinements, new technologies, more efficient powertrains and advanced transmissions, said Ford.
CAP Monitor, April 2010, set residual values over three years and 60,000 miles for new S-MAX, Galaxy and Mondeo Titanium 2.0 TDCi (140PS) PowerShift Auto five-door at £9,925, £9,475, and £6,700 respectively.
This represents improvements of £1,275, £825 and £175, respectively, over outgoing models.
Ford introduced the radical change to its pricing policy last month, which saw it abandon high list prices and high discounts, moving instead to a policy of reducing list prices and cutting discounts by a corresponding amount.
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 pricing policy, which initially only affects Mondeo, S-Max and Galaxy but will eventually be rolled out to all Ford’s cars, will see dealer discounts reduced significantly and will also see their margins hit.
“Dealer margins are down but what a dealer sells a car for is still up to them,” said Sharp.
“They will still have enough headroom for them to make a profit.”
The decision to move the pricing policy, which brings list prices closer to transaction prices, was only taken after “lengthy discussions” with Ford’s 550+ dealers.
“The percentage margins are down in fleet and retail so our dealers are supporting this,” said Sharp.
“We have reduced the headroom for dealers, but we have to provide sufficient margin for dealers to operate.”
While allowing dealers huge scope for discounting, Ford’s previous pricing structure was losing potential customers who were looking no further than the high list prices.
“For the retail buyer, they looked at the list price and didn’t go any further, so we were losing traffic,” explains Sharp.
“In the world of car comparisons, we are very often judges on list price – we had the wrong price label.”
It was also having a negative impact on Ford’s fleet sales, which account for 70% of its large car sales.
“Our approach was causing some confusion and incurred a disadvantage for company car drivers,” said Sharp.
That disadvantage relates to the way benefit in kind tax is calculated from a car’s list price, not the price a fleet actually pays for the car.
Now company car drivers considering Ford’s large cars – the Mondeo, S-Max and Galaxy - will see list prices cut by up to 12%, which typically means £2,500 to £3,500 off.
Under this new ‘Blue Tag’ pricing model, the new Mondeo Zetec for example, will be priced £2,400 less than the current model.
Fleets will not actually see this saving, as any manufacturer discount they currently enjoy will also be cut.
“This is not price slashing,” said Kevin Griffin, Ford’s fleet operations director.
“We are leaving transaction prices where they have been.”
But it does mean company car drivers will be more likely to opt for a Ford as they will be paying less tax.
To counter any risk of harming future residual values, Ford and its dealers must be absolute in their conviction that they will not return to heavy discounting.
“This has reassured CAP and Glass’ s that RVs are not hit. Provided we do what we say we will do, we will reaffirm RVs,” said Sharp.
Adrian Rushmore, managing editor at Glass’s said the strategy is sound.
“Anything that they do to close the gap between list and transaction price is a positive move,” he said. “It provides a lot more transparency for fleets.”
The move follows 18 months of successive price hikes by the carmaker, which saw the list price of some Ford cars rocket by 20% in 18 months.
This had the effect of pushing them out of their traditional company car bands and into bands where the premium carmakers sat.
For example, the Mondeo found itself competing against the Audi A4, on list price at least. “We were in the illogical position with our list price versus premium cars.”
The manufacturer is also investigating how to ensure its dealer demonstration cars are the higher spec models needed to allow salesmen to show off the new technology.
“We need to find an economical way to get high-spec Christmas tree demo models into dealers,” said Sharp.
Comment: Ford gets real on prices
Ford’s announcement that it is cutting between 10%-12% from the list prices of the Galaxy, S-Max and Mondeo is big news on a number of levels.
Firstly, 10% price cuts do not come around every day, or even every year – the last big price re-alignment for the industry was the “rip-off Britain” campaign in 2000, which led most manufacturers to reduce prices by the same amount.
Secondly, Ford is the traditional price-setter in the UK car market (the market leader in any industry is usually the one that sets prices). It had big price rises through 2009 adding up to a whopping 20% over the course of the year. It is now admitting that the final price rise in December simply did not stick and action had to be taken. Finally, on a strategic level, it shows that discounts are declining in attraction compared to the all-important P11D value, which is based on list price. As Nigel Sharp, MD of Ford, said, “You cannot discount your way to a lower P11D value.”
Not that this is a knee-jerk reaction to a failed price rise. Ford of Britain has been working on this idea since last summer and needed a lot of time to square everybody involved.
You can imagine the first conversation with Ford of Europe, “In Britain we are losing money because of the fall of the pound and we want to react by cutting our prices in sterling.” Ford of Europe took a while to come around to this radical way of thinking, while there were also the leasing companies and dealers to talk to. The reaction of one dealer was instructive, “Whatever happens to list price and discounts, I have made the same margin on a new car for the last 20 years, so you might as well reduce the list price.”
Ford is convinced that both transaction prices and residual values will be unaffected by the headline cut – it is a simply a step towards a more transparent market. It all makes sense, but leaves Ford with one unresolved issue – the Ford Focus. The Mondeo list price now starts at £17,290, whereas the smaller, older Focus starts at £17,870.
Of course, Ford is now offering over £4,000 off Focuses, but it does make the list price look very lop-sided. Ford says it can only change the pricing structure at the time of a model change – hence the new petrol and diesel engines for its large cars dictated the timing. Ford hints that it would like to re-align the Focus in September with the new model year cars, but will not commit at this stage. Transparency still has some way to go.