2011

SHRM Assignment
Auto Collection: Ford’s Better Idea for
Selling Cars and Trucks

Kamlesh Chauhan
IIMA
2/20/2011
HR Implications:
If Ford goes ahead with “Auto Collection”, there are multiple HR issues they have to handle.
Without handling these issues they’ll not be able to achieve the target of improving
customer satisfaction and reduce stress involved in buying process. Following are the issues
Ford will face:

 Salesperson behaviour: A drastic change in salesperson behaviour will be required in

order to implement the policy of “Auto Collection”. 50% of existing employees are
expected to leave the company and join other dealers. Employees who are
pretending to be converted pose danger to new system. They’ll continue confusing
customers.
Salesperson now will also require teach the customers about different cars and their
features. One major problem could now that many salespersons will start focusing
on selling more and more cars. Customers will be rushed for buying the vehicle.

How to address it:

The objective of concept will not be attained unless salespersons are incentivized to
deal customers in good manner also. They should have commission scheme similar
to the incentive scheme employed by Richer Sounds. Customer satisfaction survey
can be filled by customer to rate how friendly and helpful was the salesperson.
Working under “Auto Collection” model requires different kinds of skill set and
behaviour so going for entirely new sales force could be a good options but
recruiting for so many dealers in very little time will be a major problem.
 Dealer Behaviour: Automobile dealers are entrepreneurs and they generally manage
most of the things related to the business by being deeply involved it. They have
discretion in decision making and make decision as per their wish. Under “Auto
collection”, they will lose their control over it which is one of major factors which
keep entrepreneur involved in the business.
How to address it:
Dealers should be given more control over their dealers especially in how to do
marketing which will also help Auto Collection as they can do localized marketing
and know buying behaviour of the customers from particular location.
  Position dynamics in Auto Collection: Appointment of a president, a COO and a CFO
of the collection is very tricky. Each dealer would like to take highest position in the
collection and it can become a major point of fight between them. Positions also
decide salary so it’ll worsen the power dynamics within the collection.
 Decision Making: Decision making by Investor committee will involve lot of
problems as arriving at consensus will take lot of time as each dealer have their own
interest.
 Decision on whose dealer location will be discontinued is not easy to arrive at. No
dealer will be willing to let go his/her dealer location. Even being in partnership a
dealer would not like to leave his/her own made venture.

If Ford doesn’t go ahead with Auto collection then they have to handle the issues related to
customer satisfaction. Currently they are facing following issues:

Ford knows that customers were unhappy but they have little control over dealers on how
to handle customers. They can just give guidelines to dealers on how to handle the
customers. Only 40% implement the recommended changes and 30% implements partial
recommendation. Ford should focus on these 70% of dealers only on how to improve
customer service. Apart from guidelines, Ford can arrange training of the sales force of
dealers if they are willing to collaborate.

One major reason why Ford wants to implement Auto Collection is to increase market share
by improving the quality of service. Their market share in Car market has been reduced to
19.6% from 21.6% in last 3 years. Management has to come up with something to increase
it again. If they don’t implement “Auto Collection”, they’ll not have anything to show on
what are their efforts on improving market share of the company.

How to address it:

Rather than going ahead with Auto Collection they can focus on dealers who follow
guidelines released by Ford on improving the customer satisfaction.
Auto Collection: Yes or No
I think Ford should not go ahead with “Auto Collection”. Following are the reasons:

 Feasible to achieve objective set for “Auto Collection”: The reason why company
wants to implement this model is to increase market share by 1%. Out of 130 large
US market, only 25 can be organized into collections. It is doubtful that through 25
Auto Collection 1% of market share can be achieved.
 Auto Collection dealers: Dealers who were willing to form collections are most likely
to be already following the guidelines sent by Ford. The problem is with dealers who
are not following the guideline. Impact of “Auto Collection” will be quite minimal.
 Is this really required?: In car segment, all 4 Ford cars have better purchase
experience compared to industry average. There is very little different in customer
experience index between Saturn which is following one price policy and Jaguar.
Probably, Ford can try to emulate Jaguar and Lincoln’s purchase experience for other
cars as well.
 HR issues: There are lot of HR issues in implementing “Auto Collection”. Finding
suitable sales force is a major concern. Dealers are entrepreneurs and they will not
like to let go decision making power from their hand.
 Collaboration vs Competition: Currently dealership model works on competition
model and under “Auto Collection” they have to collaborate with each other. This
will require change in attitude of dealers. Also, partnership formation will be very
tricky as that’ll decide stake in profit made.
 Ford’s 35% ownership: So far dealers were getting 100% of profit made but under
new model Ford will get 35% of profit. Dealers will not be willing to share their
profit.
Profit Calculations:
We have accounted for the change in various costs and tried to find how much a dealer
would benefit from accepting “Auto Collection” model and form a partnership to be a part
of collection.

Auto
Particulars Current Collection
Total Sales 31963140 31963140
COGS 25618295 25618295
Gross Profit 6344845 6344845

Sales Commission and incentives 1268969 1268969

Sales Supervision commision and Incentives 507588 507588
Delivery Expenses 25379 25379
Other Incentives and commisions 158621 158621
Advertising 268026 -30% 187618.2
Interest-Floor Plan 329565 -100% 0
Laundry and Uniforms 19035 19035
Wages 408967 408967
Rent and Equivalent 571036 571036
Admisnistrative Personnel Expenses 222345 -15% 188993.25
Utilities and Telephone 126897 -25% 95172.75
Employee Benefits 190345 25% 237931.25
Stationary and Office supplies 47586 -10% 42827.4
Legal and auditing 95173 95173
Insurance-other than buildings and improveements 148469 148469
Other expenses 1108206 1108206

Total operating expenses 5496207 5063985.85

Additional Cost Interest Per year

Interior Branding 75000 30000 105000 21000
Exterior Branding 750000 600000 1350000 135000
Information System 5000000 18181.81818 3636.364
Management Cost 1045000 95000
254636.4

5318622.214
Profit 848638 1026222.786 667044.8
If sales level remains same, Auto Collection will lead to increase in profit of a dealership. But
new model 35% of profit will be shared by FIECo so dealer would get just $667045 instead of
$848638. There is very less incentive for dealer to forge the partnership.

Also, it has been observed that one price policy generally reduce sales in initially phase. In
that case Profit will be even less. Also, it is taking discretionary power from dealers’ hand
which is one of the prime motives of these dealers to work entrepreneur.

Partnership will benefit a dealer if “Auto Collection” can improve market share of Ford by
1%. In that case profit will be substantially higher. But given there are problems involved in
implementing this solution and probability of succeeding in achieving is less it is very
unlikely to benefit Ford or dealers. Ford can focus on dealers on whom it has control and try
to improve customer experience in those areas.