Ford showcased their commitment towards electrification with their Mustang Mach-E reveal late last year. Since it’s debut, the Mustang inspired electric SUV has done nothing but excite consumers with our impending all-electric future.
The new electric Ford compares nicely with the upcoming Tesla Model Y and as such, Ford has taken a liking to Tesla’s tried-and-true innovative industry methods. The company seeks to mimic a lot from Tesla even going as far as changing up the entire buying process.
Rather than treat this new car as any other on the lot, the legacy automaker is using this opportunity to shift things up. The Mustang Mach-E was unveiled alongside a reservation program similar to Tesla’s. In order to purchase the electric vehicle you must save your spot in line with a $500 refundable deposit. The new method clearly worked as the first edition models quickly sold out.
Reports rapidly came in stating that Ford would treat this vehicle like no other in terms of pricing. Through a uniquely created “e-invoice” system, the price of the electric Mustang would remain steady. Dealers were told not to mark the vehicle below MSRP. But what exactly are the rules and what forces privately owned dealerships to follow?
Ford and all other legacy automakers do not sell cars to consumers, they sell cars to dealerships. Unlike Tesla, each car built is sold before it even hits a transporter. Privately owned franchises then take those cars, which they purchased from the manufacturer, and sell them at a profit. Only the behind the scenes is a little more complicated than that.
Through volume bonus’s, holdback, trading margins, and many more compensations, the franchises are paid by the manufacturers for selling new cars (on top of the already sustainable profit margin). With the Mustang Mach-E, Ford has reworked the entire invoice and commission system in order to maintain better control over pricing.
The above image comes directly from Ford.
See, Ford can ask dealers not to hike up or lower the advertised price all they wan’t, but there’s not much forcing the dealerships to comply. The cars for sale to the public are no longer owned by Ford and franchises have close to free realm to do as they please. But with this new system, by reworking their incentives, Ford is able to have a larger than normal grasp on pricing.
In short, the vehicles hold no profit margin. Instead, the invoice given to franchises comes at the MSRP of the car. The profit is solely made through the manufacturers bonus’s. At most, the Ford Mustang Mach-E will leave dealerships 4.9% + $250 of “wiggle room”.
- 1% + $250 as a delivery allowance. This is meant to compensate the dealership and employee cost to physically prep and deliver the vehicle.
- 1% in ad covenant is money to be used for marketing purposes.
- 2% in EV Funding is a bonus for maintaining proper EV certification and on-site chargers. Forcing EV education is a must especially with all the misinformation we’ve received from today’s Ford network.
- 0.9% is made up of two bonus’s, one for maintaining a positive customer feedback quota, and another for registering a minimum of 70% of new car customer through Ford’s app, FordPass.
These bonus’s have strict guidelines attached. Franchises will instantly lose the 1% ad covenant if they advertise the Mustang Mach-E below MSRP. They cannot offer any approvals, incentives, or discounts on the vehicle. Two violations within a six month period will result in a three month suspension from the program.
The division of bonus’s are arbitrary as the dealerships aren’t required to spend the funds on any specific thing. Instead, they are separated in order to regulate further and maintain more control. For example, if the dealership doesn’t maintain positive feedback, the manufacturer takes away their Ford Commitment Program bonus.
However, as a manufacturer, Ford can only regulate so much. In terms of the 1% Ad Covenant bonus, they can only monitor advertised prices. Once the dealership has made initial contact or if the customer is within the store, the dealerships are free to move the prices in either direction, as is with tradition.
Due to high demand and low volumes, we initially expect the Mach-E to sell at or above MSRP. But after it’s entrance to the mass market, don’t be afraid to negotiate the price.
Regarding the specific changes to the Mach-E buying process Ford told their franchise network this:
There are three primary reasons for implementing these changes for the Mustang Mach-E: (1) be competitive in battery electric vehicle space by transacting in the way customers want to transact. (2) protect the brand image of the Mustang Mach-E, and (3) help protect dealer margins.
