RIO DE JANEIRO, BRAZIL – Ford’s decision to stop producing cars in Brazil and become only an importer of premium models, announced in January, will eliminate at least 160 dealerships in the market that will either shut down or try to migrate to other brands.
The Ford network has 283 points of sale in the hands of 138 entrepreneurs. The company wants to keep about 120 of them, considered viable for the new business. However, this same group is the target of other automakers that see an opportunity to expand their presence in Brazil or open units where they do not now operate.
While discarding a large number of dealerships that it considers “no longer suitable to continue” – as it said in a letter to distributors – Ford is currently disputing with competitors for the best stores. “Whoever comes up with the best offer will win,” says an executive involved in the discussion.
“Several brands are engaged in intense discussions to attract the best Ford dealerships,” confirms an entrepreneur, on condition of anonymity. “There are many people inviting dealerships to switch brands, offering attractive packages such as grace period credit lines and cars in market segments that Ford will no longer have.” The dispute is under the responsibility of directors of the network management and commercial areas and consulting firms that assess store locations, financial health, sales history, customer portfolio and structure.
The Renato Ferrari Law, which dictates the sector’s rules, provides for delimitation of the sales area for vehicles from one brand. “This will be respected”, says the entrepreneur. Several dealerships were approached but did not wish to openly talk about the subject. According to them, there is a confidentiality clause regarding negotiations.
Ford has already closed some dealership maintenance contracts. “Few”, says the Brazilian Association of Ford Distributors (ABRADIF), which is against the strategy of individual negotiations with dealerships and advocates collective talks.
The automaker is taking advantage of the fact that representation contracts are individual. As an importer, it needs less than half of the current network to sell cars with prices starting from R$160,000 that it will bring from Argentina (Ranger), China (Territory), Uruguay (Transit), USA (Mustang) and Mexico (Bronco).
In the list that it intends to preserve with the oval slogan are most likely groups that in 2020 made high investments in opening (or re-opening) stores with Ford’s new global standard of architecture.
Among them are the Amazonas (São Paulo), Econorte (São Paulo countryside), Roma (Rio), GranVia (Pernambuco), and Forlan (Minas Gerais) groups, which built modern facilities with glass walls and high-tech workshops.
Industry sources estimate the investment in stores with this standard at about R$2 million. “I invested a fortune,” says Paulo Magalhães Noronha, from Econorte, which opened a global standard dealership in Taubaté (SP) in August.
The group has 2 more dealers in the countryside of São Paulo, with 150 employees. Noronha says that, if it is up to him, the 3 units will maintain the Ford brand. The other groups didn’t respond to a message seeking further comment.
Whoever is left in the Ford network will also have to service the cars in circulation. According to ABRADIF, there are approximately 500,000 vehicles circulating in Brazil that are still within the three-year warranty period granted by the manufacturer upon purchase.
Brands that compete with Ford dealerships are also eyeing the 7.5% market share that Ford had before it stopped production. Contact portfolios and customer loyalty interest manufacturers, even if the market is not as heated and stores are operating at idle capacity.
There is a window of opportunity in the distribution segment and brands with good sales performance want to take advantage of this. Fiat, Jeep, Hyundai, and Caoa/Chery (which has ten Ford dealerships) registered a lower drop than the market in 2020 and gained share. But there are others off this list in the fight.
Dealers association is considering going to court
The dispute for its most profitable dealerships fought by competitors occurs in parallel with Ford’s difficult negotiations with the Brazilian Association of Ford Dealers (ABRADIF) about the indemnity to be paid to dealers, some of them family groups representing the brand for 60 years.
The association is considering a lawsuit, which may delay a solution between the parties, but says it believes a consensus can be reached between the parties without going to court.
One of the disagreements is that Ford has proposed compensation according to the store’s turnover in the past two years, but excludes direct factory sales to fleet owners and rental companies and to people with disabilities located in the dealers’ territory. Both are made by the automakers, but go through dealers for delivery and servicing. In the past two years, this type of sale represented over 40% of the new vehicle business in the country.
ABRADIF wants the company to exclude the year 2020, which, due to the pandemic, posted the worst record of sales in recent years. In 2019, 218,500 Ford cars were sold, a number that fell to 139,200 last year, a 36.3% plunge.
The association’s accounts show that the average investment made by dealerships amounts to R$1.5 billion, suggesting that this would be the total compensation to be paid. Another claim is that the automaker should bear the costs of staff layoffs – the dealership network employs 11,000 people.
Notice
ABRADIF sent Ford an extrajudicial notice about its dissatisfaction with the proposal and criticizes individual negotiations with dealerships, which it describes as “negotiating moral harassment.”
In its reply, Ford says that it “will pursue individual contacts for fair and balanced agreements.” It adds that the negotiations “show its commitment to a speedy conclusion of the agreements and subsequent payments, minimizing potential impacts of the transition period for the whole network.”
ABRADIF alerts to the fact that each dealership’s business has lost market value with the end of production. In a letter to the association, Ford says that it is offering selected dealers solid conditions to take part in its new stage as an importer.
Source: Exame