Ford's Franchised Dealers Trying to Price Gouge F-150 Lightning Customers is One Reason Why We Don't Really Need Them Anymore
The new F-150 Lightning electric pickup truck from Ford, has generated a ton of interest as the electric version of the most popular pickup in the U.S. The demand from consumers is so strong for Ford's first electric truck that some dealers are trying to cash in by overcharging customers by as much as $10,000 over the sticker price.
Ford CEO, Jim Farley, recently said that the new F-150 Lightning is the automaker's "iPhone moment", comparing it to Apple's launch of the iPhone in 2007, which transformed the entire industry into the app-based world we live in today.
But as reports of customers being overcharged in order to get their F-150 Lightning quicker, Ford said that any dealers selling the electric pickup for higher than the sticker price will face "very strict consequences" and dealers must play by Ford's rules.
This includes no side deals, or selling "early delivery time slots'' at a premium. More importantly, Ford says there can be no added dealership markups (ADMs) that will favor one customer over another, just because they're willing to pay a lot more to get their hands on the Lightning pickup before others.
Ford offers four versions of the F-150 Lightning. The base Pro model starts at $39,974 and climbs to $90,874 for the higher end Platinum trim.
The real question here is how price gouging reflects on Ford's customer service and its network of franchised dealers. By setting precedent and allowing dealers to get away with these practices for years, the automaker's dealer network is essentially doing a disservice to its customers by overcharging them. But now that Ford is aware of the problem the automaker is looking to address it.
"It has come to our attention that a limited number of dealerships are interacting with customers in a manner that is negatively impacting customer satisfaction and damaging to the Ford Motor Company brand and Dealer Body reputation," wrote Andrew Frick, Ford vice president of U.S. and Canada sales, in a letter to dealers.
"These actions are perceived as threatening customers by withholding their opportunity to convert reservations to orders," the letter said. "This behavior is not allowable," Frick added.
Even though individual dealers are responsible for pricing and inking deals with customers, Ford as a major company needs to ensure that price gouging is never experienced by its customers, especially with the high stakes riding on the successful launch of the automaker's first mass-market electric truck.
Many people loath shopping for a new car at a dealership for this reason. High pressure sales tactics add-on services are commonplace, not just with Ford, but with the industry in general.
But now that Tesla has disrupted the auto industry with its electric cars and direct to consumer sales model, other automakers are following suit and are offering customers more online purchasing options. This includes being able to buy a car online and have it delivered to their home or office, without ever having to deal with a high pressure dealership sales department.
Tesla, for example, advertises all of its electric vehicle prices clearly on its website and that's what customers pay, no more or no less. The business model works for Tesla and its tech savvy customers appear to be just fine with it.
Tesla sold almost a million cars last year without the help of a network of franchised dealers and at the same time rose to become the world's most valuable car company with a market cap topping $1 trillion, dwarfing Ford's current $100 billion valuation.
What's more impressive is that Tesla as a company does not even advertise its vehicles. All of its sales are through word of mouth and Tesla has some of the auto industry's most loyal customers.
To be fair, Ford has its loyal customers too, especially with its F-150, which was the best selling truck in the U.S. for 44 consecutive years. So why are Ford's loyal F-150 customers subjected to price gouging at all? It doesn't have to be this way.
Electric truck maker Rivian has also adopted a similar direct to consumer sales strategy as Tesla. Rivian's new R1T electric pickup is also an attractive alternative to Ford's F-150 Lightning and the first deliveries began last month. In addition, the electric Silverado from General Motors will go on sale in 2023, so buyers looking for an electric truck will have other choices very soon.
This of course will give Ford more competition in the electric truck segment, so the company needs to ensure its customers are treated fairly when shopping for a new vehicle, even if it's a very popular electric model like the F-150 Lightning.
Although Ford has been in business for over 100 years, the auto industry has been transformed by technology, especially over the last decade, as buyers can shop for new or used vehicles online and compare prices from dealers in different states without ever visiting a dealership in person.
So why are dealerships even needed to sell cars? Turns out that many state laws ban automakers from selling cars without the help of dealerships owned by third party franchisees.
These laws have hampered Tesla's vehicle sales in some states. New Mexico, Alabama, and Louisiana for example, have barred Tesla from both operating dealerships or repair shops since its doesn't have a franchised dealer network. The rules appear ridiculous in the modern era where so many products can be purchased online.
Local dealerships still serve a purpose other than simply sales. The brick and mortar locations provide a direct link to customers for servicing needs, warranty issues or to purchase vehicle accessories and have them installed. They also create jobs. But customers should also be able to make a vehicle purchase online and only visit the dealer to take delivery, not for the sales part.
This new online vehicle sales model was further bolstered by the pandemic of the last two years and it will likely stick around for good, as technology transforms how companies do business both online and in-person.
However many car shoppers may still want to visit a dealer to look at vehicles in person, test drive it and view accessories and options such as wheels. This is why both Tesla and Rivian have a network of smaller, company-owned, low pressure retail locations. However, Tesla and Rivian customers can still make their vehicle purchase entirely online in most states without dealer franchise laws.
Despite the recent reports of price gouging, reservations for Ford's F-150 Lightning have been much higher than anticipated. In December, Ford briefly closed its reservation books after CEO Jim Farley said that the company was "approaching 200,000" reservations for the electric pickup truck.
The company has since reopened them and announced it was increasing annual production a third time from 80,000 to 160,000 vehicles to meet demand. Other EVs from Ford are also in the works.
In May of 2021, Ford said it expects to spend more than $30 billion by 2030 on electrifying its model lineup, including EV battery development. Ford's previous EV commitment was $22 billion. The automaker aims to have 40% of its global volume all electric by 2030.
Ford is implementing a two-step process to order the new F-150 Lightning. Customers must first put down a $100 fully refundable deposit that earns them the right to order the truck. Ford later sends an invitation to customers so they can officially place their orders.
The same sales model is offered for the Mustang Mach-E electric SUV and Ford Maverick hybrid pickup and it's quite simple and a new model for automakers that traditionally shipped vehicles to dealers that are tasked with handling the sales part.
With Ford's new sales model that will likely stick around, customers order the vehicle in their designed configuration, then the automaker builds it and ships it off to a local dealer so the customer can take delivery.
Although Ford sells the reservations directly on its website, buyers that place an order online still must designate a local dealership to deliver the vehicle, which is fine as long as customers are not being overcharged.
The first deliveries of the F-150 Lightning will begin in the spring.
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