For years, Ford truck incentives moved a lot of pickups, driving customers to the sales lots for big savings. A recent interview with Ford’s CEO hints at this practice coming to an end.
In a recent interview with Reuters, Ford’s CEO Jim Farley admitted the Dearborn, Michigan, automaker is losing money through incentive campaigns. He went on to explain Ford is making a change in their production plans.
“I know we are wasting money on incentives,” Farley told the publication. “I don’t know where. We are really committed to going to an order-based system and keeping inventories at 50 to 60 days’ supply.”
Anybody who has gone truck shopping knows every brand offers something off the top. A thousand dollars here or there really seems to help move trucks off the lot making dealers, manufacturers and customers happy they are “getting a good deal.”
As we previously noted in a story about rising new truck pricing, these incentives are really just fiction with automakers quietly raising the starting price then offering incentives bringing the price back to where the truck began. Smoke-and-mirror tricks from the marketing folks, if you will.
Now it sounds like Farley wants to change their entire production plan.
Another long-running practice has been to stockpile trucks at dealer lots. This helps automakers show investors they are shipping new vehicles as well as helps dealers create a large selection for customers.
Most of the Detroit Three truck makers follow this approach and let the dealers search for trucks to match customers needs. Or they simply sell a customer a truck with more or less features they want and offer them an incentive to purchase.
Building to order and reducing inventory would be a big change for Ford Motor Co., Ford dealers and customers.
For Ford, this would mean an initial slow down in the volume of trucks they ship as they transition to the new system. This would eventually get ironed out, though, and the automaker would likely reap bigger profits per truck by not building an excess amount of trucks they would have to discount to move off dealer lots.
For dealers, this would also be a win with more customers walking into the show room with build sheets listing everything they want. This is a much easier sell with less time testing out different trucks and talking through the various options. It would free up sales people’s time, see a reduction in the number of sales people and could free up the dealership lot to offer more used vehicles — an area where dealers still make a sizable profit.
Finally, for customers, it would mean doing more online shopping. Find the features you want and then, well, be patient. The being patient part might be the hardest thing for most people.
A reduced supply along with more customer build-to-order pickups would be a big change for Ford, yet a needed one to keep profit high. Building thousands of trucks and stockpiling them on lots has lead to an unhealthy company over the years.
A more streamlined approach using some of the same tricks Tesla and Toyota use to keep inventory low and profits high could lead many others to follow suit. This might just become the biggest change in the automotive market in decades.