European carmakers want larger, more centralized dealers. Some have also begun selling cars on the Internet. But Ford of Europe sales and marketing boss Earl Hesterberg said European customers still demand close, personal relationships with local dealers.
In an interview with Automotive News Europe reporter Georg Auer, Hesterberg also said that overcapacity is a bigger threat to dealer margins than web sales and fleet deals.
Hesterberg, 46, first gained recognition when he revived Nissan brand sales in North America in 1991. He later moved to Nissan Europe as sales and marketing boss and then spent a brief period as chief executive of Toyota's independent Gulf States distributor in the USA.
Last July, Ford of Europe Chairman Nick Scheele brought him back to Ford where he began his career in 1975 and back to Europe.
How are you changing sales and service at Ford in Europe?
The biggest change in the industry is about how the customers and the dealers relate to each another. European business is done locally. We still need people to deliver our product, demonstrate our product and service our product.
How is that consistent with your plans to have big centralized dealerships, as in the USA?
We don't want to structure our business according to what we think. We want to structure our business according to what our customers tell us. To be successful we cannot inconvenience our customer more than the competition does. If a VW customer has to drive only 15km to the nearest dealer you can't expect a Ford customer to drive more than 25km to his dealer just to reduce the fixed cost in the distribution system.
In the same way, the customer's expectation of how long he or she will wait for a car will tell us where to put the inventory.
Dealers are worried that you will try to sell to customers directly on the Internet, with the dealer merely delivering the car at a reduced margin. The customer might then go to the dealer and demand the car for the same price as on the Internet.
It is a big problem for us. Our job is to make the dealer profitable. The real key to this price concern with the Internet is supply and demand. If your supply is behind your demand the pricing works, no matter whether you are talking to a computer or to a real customer or a fleet buyer.
The trouble at Ford lately is that our supply is greater than demand. That is where our prices get hit. Overcapacity in Europe is creating a situation where almost every manufacturer has a supply bigger than demand. That is a bigger enemy to the dealers' profit than the Internet.
Fleets such as Ford's Hertz car rental firm get cars much cheaper than the dealers, and after six months they sell them off cheaply. What are you doing about that?
When supply and demand are in the correct balance, nobody seems to care. When you have oversupply and people start to push too many cars to the rental companies, then it becomes an issue. We do listen to the market and in some countries we do not sell cars to Hertz. In Germany this year we will not sell a single Mondeo to rental companies. The cars would have a too low a residual value.
But you do need exposure for your product. Manufacturers need some presence in the major rental car companies. And the cars coming back from the rental companies can be very profitable cars for the dealers.
In the past we perhaps did not manage our residual values as we should. Now it is a major part of our marketing.