Mercury Wind Down Will Result in Greater Consolidation of Ford’s Dealer Network

Ford’s decision to wind down its Mercury brand will place its current Lincoln-Mercury dealers in a tough, perhaps untenable position. Although sales have slid in recent years, the Mercury brand still accounts for about half of all the dealer’s annual sales. With the brand gone, they will have no option but to try and up sell their customers on more expensive Lincoln models.

Daniel Patterson is an auto dealer consultant with UHY Advisors Incorporated in Smithfield, Michigan. He thinks consumer’s natural reaction to the death of the Mercury brand will be to take their business to the nearest Ford dealership, especially considering the cross-shopping that is currently done between the two brands.

“This will be a real challenge for the standalone Lincoln dealers to keep those Mercury customers who might move over to Ford cars,” said Patterson. “That also makes it an opportunity for the Ford dealers.”

He said the logical outcome will be greater consolidation of Ford’s dealer network as smaller, stand-alone dealers merge with Ford dealers in their markets in order to survive.

“That’s the unspoken part of all of this, that it will encourage people to be part of the consolidation program,” said Patterson.

Varsity Lincoln-Mercury general manager Michal Stanford, Sr. concurs with Patterson’s prediction and says he was not surprised by Ford’s decision to kill the Mercury brand. In fact, he said he has been preparing for it for more than a year. Even though Mercury currently accounts for about 50% of his annual sales, he thinks his dealership has the sales volume needed to survive as a stand-alone Lincoln store.

Stanford said, “We’re strong enough that we’d be OK. But, we sold 2,500 cars last year. For a dealer who sells 70 cars a month, it’s not going to work.”

Stanford also owns a Ford dealership in nearby Ann Arbor, Michigan. According to the Detroit Auto Dealers Association, most local Lincoln-Mercury dealers are not as well positioned to survive as stand-alone Lincoln stores. Of the 15 Lincoln-Mercury dealers in the local area, only three are connected to a Ford dealership.

Notwithstanding his ace-in-the-hole Ford dealership, Stanford said he is encouraged by Ford’s plans to introduce an entry-level Lincoln with underpinnings borrowed from the Ford Focus. Stanford thinks the new model will be “a great opportunity to draw in new customers.”

Crest Lincoln-Mercury general manager Chan Whiting also sees the long-term benefits of doing away with Mercury. Although he predicts short-term pain for his Sterling Heights, Michigan store, he thinks the increased focus on Lincoln will ultimately pay dividends. He said, “At the end of the day, there is going to be more money to use for marketing Lincoln, more resources available from the company.”

Lincoln-Mercury dealers will also receive financial compensation from Ford to help them with the transition. Payouts will be based on the percentage of Mercury products sold by the dealer annually. Dealers whose annual Mercury sales accounted for 0% to 25% of their total annual sales will receive $1,500 per unit sold. Dealers whose Mercury sales accounted for 26% to 50% of their total annual sales will be compensated $1,650 per unit. Those with annual Mercury sales accounting for 51% to 75% of total annual sales will be paid $2,000 per unit. Payouts will top out for dealers whose annual Mercury sales made up between 76% and 100% of their total annual sales. These dealers will receive a payout of $2,500 per unit.

Although Michigan’s Dealer Franchise Act does not require Ford to compensate its Mercury dealers, Abbott Nicholson Quilter Esshaki & Youngblood PC dealership practice group co-chairman Abbott Nicholson said there is was a precedent when GM eliminated its Oldsmobile brand last year.

“Ford’s position is that it is doing the best it can under the circumstances to be generous,” said Nicholson.  “But whether it’s enough in light of the millions of dollars the typical dealer has invested in their facilities and business in general is a question that can only be answered by the dealer.”

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