Ford New Holland: out of the company store business.

SHORTLY after the merger of Ford Tractor and New Holland was done early in 1986, a Ford marketing executive told I&T:

"One of the things we'll be doing is taking a look at New Holland's company store system. They have a lot of them, and maybe we'll want to keep what they're doing or even expand it. Or maybe we won't; maybe we'll drop them."

Was there ever any suspense about what the outcome would be? Now that Ford New Holland no longer has company stores, hindsight tells us there shouldn't have been, but there was.

As a general rule, dealers have been negative about the idea of a retail outlet owned by their own or another supplier, particularly one dwelling nearby. However, many of these same dealers have been heard to say at times that the store was such an inept competitor that they saw about as many plusses as minuses in the situation.

Depending on their company backgrounds, industry marketing executives have usually tended to take a variety of attitudes toward the manufacturer-as-retailer. Some thought it was an appropriate route to survival, assuring the company some level of market share. Some thought it a losing proposition always. And there was a middle ground that accepted the company store as a

limited means to a temporary end, to be used after other means had been ruled out.

One marketing executive once remarked that he liked to prowl the lots of his competitors' company stores to see which products in their line their dealers didn't want. "You'd find the loser products stacked up at those stores," he said.

Three years ago, there were 53 Ford New Holland company stores, a total of about 100 outlets, according to Don Wells. By the first of this year, almost all of them were sold off or closed.

Since 1981, Wells had been New Holland's manager of company store operations and before that, he had operated stores for

the company. Today, he manages Ford New Holland's dealer development program, which is replacing the company store approach.

Market shore, training

"New Holland used its company stores as a means of getting market share in areas where it was lacking," Wells said. "You get market share by the inch, and you get it by giving the service and having the parts. If an independent dealer goes into an area with a franchise, if there is no field population of machines there to provide a parts and service market, he is probably going to lose money."

He also noted that retail stores provided a good training ground for company personnel. "A lot of wholesale people in this business think they know the retail end of it. They don't. People who have been involved in company store management have this understanding. Two of our branch managers today came through the company store management route. "

The company stores were set up as profit centers, said Wells. "They had to buy equipment on the same basis as any dealer and were charged current levels of interest."

When a corporation like New Holland set up a company store, it had to pay the people it hired the same fringes that any other corporate employee was getting. Didn't this overhead burden make it difficult?

Yes," said Wells, "but those benefits meant that you could hire better people, and people are the main factor in making a go of anything. "

Most of New Holland's company stores had a tractor franchise. Ford was the most common one, but there were others, such as White, Versatile, Deutz-Allis and Steiger.

Dealer development

Some of the company stores were sold to Ford dealers, who closed some of them. Most of the stores moved into dealer development status.

Today, there are 76 dealer development operations in Ford New Holland's North American organization. They are separate, independent corporations in which Ford New Holland is a stockholder.

"I have six regional dealer development managers," explained Wells, "and each one calls on 13 or so DD operations. His function is to work on management techniques, to get the business to achieve profitability. He sits on the board of directors of that dealership corporation."

Other Ford New Holland marketing personnel call on these same dealerships, just as they do all other dealerships.

"The guideline is to get these businesses out of the dealer development system in eight years," said Wells. "There may be variations on this. It might take longer for the new owner to acquire full ownership from Ford New Holland if there is a drought situation, for example.

"The DD program allows for an accelerated buyout pace. Sometimes the dealer/co-owner is able to develop enough profits that the money is there for this. But we wouldn't want a dealer to buy out our interest too soon if we thought that in doing so he was leaving himself short of operating capital. "

Wells said that Ford New Holland doesn't want to put in more than six dealer development businesses a year. Occasionally, the new dealer is a former Ford New Holland employee, perhaps one who was involved in a company store operation.

"Five of Ford New Holland's top 10 dealers are either in the dealer development program or are graduates of it," he added. "But we also have some very successful DD businesses that are not doing a large sales volume-$2 million or $2.2 million. The key consideration is, is that business generating enough profits to buy out Ford New Holland's interest? That's the main thing when we look at any DD situation. Usually, the potential has to be there for sales of at least $2.5 million to $3 million. "

What's the policy when the DD business has an opportunity to take on another line of equipment? "Our regional dealer development manager is going to be sitting on the board and he has a hand in the decision, " said Wells. "If the product is going to mean more sales volume for the dealership, and most important, improve its profitability, that's good."

But don't look for Ford New Holland dealer development operations to carry directly competing lines.

FNH's decision

Hugh Cotcamp, who heads Ford New Holland's North American marketing, talked with I&T about the decision to get out of company stores.

"The decision came only after a very thorough review of all the pros and cons of company stores vs. a dealer development program. It came down to our basic belief that a privately owned dealer organization is the most desirable situation.

"There were some ordinary business factors in our decision, but they weren't primary," he said. "For example, as long as Ford New Holland had inventory at its company stores, it was ours, and it had to be shown on the books as such. But dealer development operations are separate corporations. Once they receive the inventory, it's theirs, not ours.

Ford New Holland also believes that its dealer organization likes the dealer development approach much better.

"Even if that company store manager runs the operation the same way that any independent dealer would, there's a perception among other dealers that he isn't," noted Cotcamp.

"The dealer development man thinks like an independent. He may have been an employee of Ford New Holland for many years, but his viewpoint and attitudes change when he has his own business. Not long ago, some of these dealer development owners were in for a management session. It was very noticeable how differently they saw things from when they were company men. "