2011

SHRM Assignment
Auto Collection: Fords 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 theyll 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. Theyll 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 itll 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 doesnt 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 dont implement Auto Collection, theyll 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 Lincolns 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 thatll decide stake in profit made. Fords 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 Collection 31963140 25618295 6344845 1268969 507588 25379 158621 187618.2 0 19035 408967 571036 188993.25 95172.75 237931.25 42827.4 95173 148469 1108206 5063985.85 Interest 30000 600000 Per year 21000 135000 3636.364 95000 254636.4

Particulars Total Sales COGS Gross Profit Sales Commission and incentives Sales Supervision commision and Incentives Delivery Expenses Other Incentives and commisions Advertising Interest-Floor Plan Laundry and Uniforms Wages Rent and Equivalent Admisnistrative Personnel Expenses Utilities and Telephone Employee Benefits Stationary and Office supplies Legal and auditing Insurance-other than buildings and improveements Other expenses Total operating expenses Additional Cost Interior Branding Exterior Branding Information System Management Cost

Current 31963140 25618295 6344845 1268969 507588 25379 158621 268026 329565 19035 408967 571036 222345 126897 190345 47586 95173 148469 1108206 5496207

-30% -100%

-15% -25% 25% -10%

75000 750000 5000000 1045000

105000 1350000 18181.81818

Profit

848638

5318622.214 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.