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Ford offers payouts to Mercury dealers based on percentage of business

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Ford offers payouts to Mercury dealers based on percentage of business

Jamie LaReau

Automotive News -- June 3, 2010 - 4:32 pm ET

DETROIT -- Ford Motor Co. is offering the 1,700 dealerships with a Mercury franchise a cash compensation for the loss of the brand.

The compensation figures, delivered to dealers in packets this morning, range from the very low thousands up to about $200,000, sources said.

Ford announced on Wednesday it would discontinue the Mercury brand. It will cease production on all Mercury vehicles in the fourth quarter. There will be no 2010 model year Mercury products.

The dealer compensation is based on a three-year sales average of Mercury as a percentage of a dealership’s total sales. It also factors in repayment for signage and parts and a blue-sky value, Ken Czubay, Ford’s U.S. sales chief, told Automotive News.

“We feel that the compensation we’re offering them is reasonable and fair,” said Mark Fields, Ford’s president of the Americas in an interview with Automotive News. “It is beyond what the franchise agreement states. It is beyond what state law states. It’s well beyond what other competitors have done in the marketplace.”

For example, most Mercury parts are commingled with Ford parts, Czubay said. Ford will let dealers keep all the Mercury parts and pay them 100 percent of the value of those parts.

“If 10 percent of a dealer’s business was Mercury business and he had $1 million in parts inventory, he’d have theoretically $100,000 in Mercury parts,” Czubay said. “We said you keep the parts and we’ll write you a check for $100,000. No one in the industry has ever done anything like that.”

But one dealer, who asked not to be identified, said Ford offered him nearly $200,000. He said that’s not enough, given he invested millions in a new Mercury-Lincoln showroom just three years ago.

Another dealer said his Lincoln-Mercury store’s annual revenues are about $2 million and that he sells about 350 Mercury units per year. “So even if they give me $500,000, it’s not enough,” the dealer said. “And now my property isn’t worth as much.”

According to sources, the formula gives dealers whose Mercury sales were 0 to 25 percent $1,500 per unit retailed annually. Dealers with 26 to 50 percent Mercury sales get $1,650 per unit, those with 51 to 75 percent get $2,000 per unit, and those with 76 to 100 percent get $2,500.

“We’ve gone above and beyond,” Czubay said. “At a time like this, you may think the franchise was worth more than what people are willing to pay for it. But I can assure you that from how we addressed it with our dealers, this was very fair and rounded up.”

Read more: http://www.autonews.com/apps/pbcs.dll/article?AID=/20100603/RETAIL07/100609934/1448#ixzz0ppLekH5m

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