MT Interview: Andy Barratt, chairman and MD, Ford of Britain

Andy Barratt, chairman and managing director at Ford of Britain talks about dealer profitability, return on investment for the network, new car sales in 2018 and the crash in diesel confidence

The NFDA surveys from 2017 had some good results for Ford. What can you do to maintain that performance, address any issues that might be coming up in the dealer network?

It’s working with them to drive value to their bottom line, enhance reputation, keep as much of the Ford business within the franchised dealer network and reduce costs. We constantly work with our dealers and the dealer council, reviewing our standards to ensure they are meaningful, that they add value and make a difference for the customer

We have a job to do protecting their investment in Ford. If Dealer A invests and Dealer B doesn’t, then has Dealer A wasted their money? The whole time we’re looking to deliver value for the dealer, make them confident about investing in Ford, as a brand and value choice, and make sure they get an adequate return for that time and investment. I don’t want to be a manufacturer who thinks we can run our dealers. They have the business and they’re good at it.

Is it different for the factory-owned TrustFord Group?

We own those dealerships, but we’re an investor. They’re run entirely at arm’s length by people who have a dealership background.

Stuart Foulds recently joined TrustFord as CEO? What are you hoping he will achieve?

Stuart has worked with Ford for well over 20 years in his time at Pendragon. He’s brought fresh thinking and innovation to the team, he’s advancing the digital work we’re doing. I think he’ll be able to offer us some great feedback on retail and from that we can help improve the business.

I want unfiltered feedback [about the business]. Based on that we can pilot things with TrustFord to improve efficiencies and reduce costs, work on low-cost solutions that enhance the customer experience. We have a great rapport with TrustFord, but we don’t prioritise them over any other dealer. All dealers across the 450 dealer points [including approx. 100 Transit centres] in the UK are equal, but that’s how we’ve set up the franchise over a long period of time.

What are your action plans for Brexit?

We have every kind of contingency planning on Brexit. That said, we’re in an advantageous position. As market leader we have a very open, two-way dialogue with all the related government departments. We also have those same connections with the German government and others. But across Europe the industry needs the same thing. A little more certainty might help, but that’s the nature of negotiation. They’re negotiating in the public domain, which is always difficult. None of us would want to be in that position. So you have to applaud their approach, support where possible.

Is UK supply an issue if there was no agreement covering movement of goods?

The question remains around the arrangements we have to clear customs, whether it’s electronic or paper. It’s not without its challenges, but it can be done. Leaving the dealers to negotiate the importation of 450,000 units a year, in the case of Ford, would not be without its challenges. Plus we have the engines leaving the country.

What would be your preferred outcome of the whole process?

The industry has been very clear. We need consistent regulation for Europe, we don’t want to develop cars for the UK market that are different from those in Europe or around the world. Everything we produce here is exported and everything we sell is imported, so we need tariff-free trade and on top of that, we need free movement of talent. That includes passporting for our credit operation. We’ve been consistent on what we need since day 1. All of that would be in the consumer’s interest and the industry’s interest.

Do you think rising interest rates will slow down sales?

We have to remember that interest rates are at a near all-time low, but even if they were to go up the increases would be modest. We see those forecast rates changing in the spreads we get from Ford Credit, which is a bank in its own right.

But rather than interest rates, customers buy on payments. About 85% of our retail customers are  buying on a PCP, it’s about the payment. That’s driven by a number of things, including residual values, length of term. So if anything, you’ll see a term length change. We’ve got 23 years of experience working with PCPs to make sure we get it right.

Is the vilification of diesel fair?

The demonisation of diesel has been to no one’s benefit. We have a major diesel manufacturing facility just to the east of London – and Westminster – which we remind the government of at every opportunity. Despite the situation, we actually increased production and export of diesel out of Dagenham last year, which is great. However, there is a long tail to that story. Levels of CO2 are starting to increase and that’s going up because due to the confusion across private retail buyers, they’re simply not buying new cars. They sit on their existing cars which frequently have lower emission standards.

Diesel still works if you’re a high-mileage user. There needs to be a push to re-educate the consumer and I argued this through the SMMT at the House of Commons. Manufacturers and government need to get a programme like this up and running.

Could Ford start a re-education programme for consumers?

Ordinarily I’d say yes, but it’s a trust issue. The consumer doesn’t trust any diesel manufacturer now. That’s why it has to be an industry body with government support. But we’re doing what we can. We were among the first manufacturers to lead with a major scrappage scheme. We’ve scrapped 17,000 vehicles from the beginning of September to the end of February 2017, which have been predominantly diesels. It was very successful at encouraging people out of older, more polluting vehicles. Multiply that out and scale that up and the level of air quality improvement would be terrific. Scrappage isn’t the most efficient use of our marketing money, I could spend less selling more through an insurance offer, service and maintenance, but it’s not about that, it’s about air quality.

The road to zero emissions is still a long way, 2040 is seven cycles of vehicle ownership away for the average buyer. But scrappage is a key part of it. If a private motorist is worried about values, drive a diesel on a PCP.  I’ll be the one taking the residual risk. But further than that it’s about confidence, am I taking the right decision for the environment and will my diesel perform exactly in line with my expectations.

How’s the Vignale programme going?

Well, we launched as a tight and focused offering through Ford stores on Mondeo, just to set some ground rules, find out customer acceptance. We’ve now extended the range into S-MAX, Edge, Kuga and importantly Fiesta. Fiesta is important, that’s where the programme becomes democratised, make access that much easier. It’s for downsizers, it’s for city livers, no one has to trade premium to drive a Ford. All dealers now sell Vignale, although primary stores still have exclusive representation for Mustang and RS performance products.

On fleet, given concerns Brexit what’s the outlook for sales?

Business confidence isn’t as poor as people think. We had record commercial vehicle sales last year, which beat the record set a year earlier and the year before that. We have about 30% of the CV market in the UK. That’s driven by growth in the gig economy, home delivery, people renewing their fleet to get more fuel-efficient vehicles. Then there’s lifestyle choices; about 70% of Ranger sales are multi-purpose use. Now we’re trialling a fleet of 20 plug-in Transit hybrids around London ahead of a full-scale roll out.

We’re trying different things to build business confidence. We work with a lot of leasing companies, a lot of conventional fleets have been moved off the balance sheet and into leasing, which has continued to grow. I’m pretty confident. We put a lot of effort into CV sales, it’s so important to the franchise network.

KPMG recently said up to half of dealerships might shut by 2025? What do you think?

I don’t necessarily agree. There is natural attrition across a dealer network which has so many points. Some people come to the end of the time they wish to work. Then they choose to sell and maybe another operator goes in there, maybe not. There’s clearly been some consolidation going on over the past few years, but it’s nowhere near as dramatic as the numbers KPMG has put forward. The internet is quite prevalent already, most used car shopping is done online, but there still needs to be a place to pick up, drop off and service. I think the shape of dealers will change, there’ll be more big showrooms and related satellites, but there’s a natural progression taking place already. I don’t think there’s going to be a big bang.

What’s your opinion of online car comparison companies which set up dealers to compete against each other?

Well, the consumer is king and you can’t uninvent the internet. You’ve got to embrace it, make sure you’re out there and get your fair share of every channel.  It’s the dealer’s choice if they want to get involved. We don’t set objectives that are so onerous that the dealer is forced to use these sites. Any dealer that has great processes can maximise their return on any sale, no matter the source. So it’s down to process, management, discipline, having a plan.

In terms of volumes where the new car market going in 2018?

When the exchange rate was strong, it was advantageous for importers to bring their vehicles here, the margins were higher. As the exchange rate dropped due to Brexit uncertainties, it’s better to take that excess production to another location. So what you’re seeing is that push go out of the market and replaced by customer pull. It’s better, it’s ordered, there’s no high stocks of pre-registered cars sitting on dealer lots. There’s every reason to be optimistic. Any dealer that has great process, great discipline, can make a good return in this market. Just keep an eye on the costs and reduce the waste.

Given a downturn in new car sales, do you think used cars can make up that difference?

There’s only a finite supply of used cars. The franchise dealers need to maximise their share of the local used car market. That means understanding what customers are looking for and making sure they profile that. As a manufacturer, looking at remarketing, we need to maintain as much of that within the franchise network as possible.

Do you think there’s still market space in the UK for a D-segment saloon?

Yes, absolutely. We’re committed to Mondeo, we’re still investing in Mondeo. It’s got a new diesel engine and eight-speed transmission going in, there’s still demand.

Do you feel like Ford is late to the hybrid party in the UK?

We’re the world’s second largest producer of hybrids, but it’s about what the local market demands. The [UK] market wasn’t demanding hybrid. Today we have a Mondeo Hybrid, it’s a stunning drive, a premium experience. But people have to choose what suits them. In the UK, the three-cylinder engine has taken the place of a hybrid offering and it’s been very popular. It’s a great alternative.

How about EVs?

We’re investing $11bn (£8bn) in EVs, 16 battery-electric vehicles, the first one arrives in 2020. There’ll be 40 products in total. Range anxiety, battery technology, they’re all being addressed.

Are you concerned with GDPR, how it will affect dealers?

We can help them with fair collection notices, which we’ve done. But every dealer has to take their own independent advice and that’s what they’ve been doing, getting customer data officers to look after that. If people are sensible, disciplined, there should be no risk. It’s about being open to the legislation and not abusing your data.

What can be done to get more women into the automotive business?

Many of my senior executives at Ford of Britain are women. We’re recruiting more female engineers, more female apprentices, there are more women appearing in sales and management roles at dealerships. I think Ford’s in a great place when it comes to women in the business. As a business we have class-leading maternity policies and we’re very strong on equal opportunities.

We had a recruitment evening for young technical apprentices, half the audience was female. We had female technicians presenting at the evening, talking about their experiences. I was very pleased to see that.