Ford CEO wants future of online sales, fixed car prices

Ford CEO wants future of online sales, fixed car prices
If you’ve bought a car in the United States before, you may have dreaded the experience. Chances are you had to negotiate the price with a dealer. Maybe you couldn’t find exactly the combination of colors and options you were looking for. You may have walked away unsure of whether you paid a fair price.

The auto industry works that way thanks to a century of unplanned business evolution and a patchwork of state and federal laws. But more has changed in the past decade than in the previous five. And more change is coming.

The head of one of America’s oldest and largest automakers thinks the future is fixed prices and online sales. Dealers, he says, could supply and service cars to size, rather than sell them from a stock of vehicles the dealer suspected people would be looking for.

“We need to get to 100% online”

Ford CEO Jim Farley told a meeting of business leaders at the Bernstein Annual Strategic Decisions Conference in New York that the company needs to transition to a new business model.

“We have to move to a non-negotiated price. We need to get to 100% online,” he said.

It’s not the first time Farley has outlined the same vision. However, he expanded it this week, saying the model would hold “no inventory” at dealerships. Instead, said Farley, “it goes straight to the customer. And 100% remote pick-up and delivery.”

That approach would be a radical change for car dealers. But Farley continued: “I think our dealers can do it. The standards will be brutal. They will be very different from what they are now.”

Tesla pioneered this in America

The sales model sounds like a radical shift, but it’s already how cars are sold in Europe.

In the US, Tesla gets credit for making this possible.

Many Americans know Tesla for its innovations in electric cars. But the changes it’s made to auto sales are just as important as anything it’s ever done to batteries.

When Tesla launched nearly two decades ago, automakers in most states were not allowed to sell cars directly to consumers. Laws required them to go through outside dealers. Tesla began a massive state-level lobbying effort, and many state governments changed their laws to allow direct sales to consumers.

In many states, Tesla directly operates its own retail stores.

Some states still block that sales method. In those states, Tesla often has “galleries” where customers can view cars and even take them for a test drive, but Tesla staff send customers home to order their cars online.

Change comes slowly

Ford cannot switch overnight to the online-only sales model. It has partnerships with thousands of dealerships across the country, who are taking much of the risk for Ford by buying, promoting, and part of the loss of an unpopular car for Ford vehicles.

It is not clear how Ford would encourage dealers to exit the sales business and become delivery and service locations.

But Tesla’s success could push the industry in that direction, whether dealers like it or not. Ford has already largely sold its Bronco SUV, F-150 Lightning electric truck and Maverick small pickup truck, mostly through online orders. All three vehicles have been smashing sales successes, though not necessarily due to the ordering system.

And dealers have faced bad publicity and public criticism from Ford for giving those vehicles hefty price increases.

It’s not just Ford

Ford is not alone in exploring the delivery model. Acura only sells its reborn Integra through a reservation system. Volvo sells its new electric cars, such as the new C40 Recharge, directly through online sales.

Other automakers have also criticized their own dealer networks for price increases. This year alone, GM, Hyundai, Nissan and Subaru have warned their own dealers about some pricing practices.

Surveys show that car buyers are happier with their buying experience when they spend as little time as possible at dealerships.

And other automakers have said they plan to have less inventory at dealerships to avoid discounting cars to sell them.

So while we can’t guarantee that you’ll custom order your next car for a fixed price and have it delivered to your home, the big news is that the CEO of one of the world’s largest automakers is thinking, “We need to get to” that system.