Driving the Ford brand through good times and bad

After 14 years at the wheel of Ford in Ireland, Eddie Murphy is handing back the keys. During his tenure the motor trade in Ireland saw its best times and its worst. In the year he took over the US car giant's Irish operations, the trade had its greatest sales year on record. As he departs it's starting to recover from arguably the worst period in its history.

“The recession is over and there has been a veritable bounce this year. Whether it is the motor industry, whether it is mainstream retail, it’s all on the back of rising consumer confidence. The [Society of the Irish Motor Industry] did a survey recently of expectations for new car sales in 2015 and of 18 car distributors questioned the high was 120,000, the average was 108,000 and we’re reckoning about 110,000. That’s just passenger cars: commercial [vehicle sales] was predicted to be even stronger in its growth.”

So just how bad has the recession been for the motor trade? “Awful. When I look at my 14-year tenure as MD of Ford Ireland I had the best of times and the worst of times.

“Going back to when I joined Ford in the 1980s the country didn’t know any better, but we did become wealthy as a nation and that manifested itself in record sales and the attitude was we’ll never see a bad day again. By Christ did we see some bad days and it hung around for the best part of five or six years. I remember talking to the dealers in 2009 and saying, ‘Look, it’s a case of bunker down, take as much cost as you can out of the place and you’ll be in a better place in two years. It’ll move on again.’ Of course, it didn’t and this is really the first year [of recovery].”

“The worst of times, from mid-2008 wasn’t just difficulties in doing business. Lots of good friends who were dealers suffered the worst. The likes of the Caseys in the west for example, they might have overstepped their non-motoring activities, but they are a good decent family, steeped in Ford, and it was tough.”

Ford’s approach to troubled dealers differed from that of some other brands. While high-profile closures hit other brands with forecourts emptied by banks and showrooms left empty, after the closure of Caseys, Ford started to get directly involved in working to keep dealerships open and running, even if under different management.

This was most evident in Dublin, where for example the family business which operated Rialto Motors on Herberton Road for 24 years hit financial trouble and by 2011 the dealership looked set to close. A deal was brokered whereby Ashley Motors, which already operated three other Ford dealerships, took over.

“We certainly tried to work with the dealers rather than abandon them. As far as I was concerned they deserved that effort. It did result in some of them being beyond saving. The O’Neills who operated Rialto, are a decent family who were in the industry for a long while, ran into tough times and we were able to get a buyer and maintain the brand there from a public perception point of view without any downside to customers.”

Another example would be Joe Duffy Motor Group, which took over Finglas Ford after it was placed in liquidation last year. It meant 40 jobs were saved and the business continued trading.

“We tried to transition difficult business cases into solutions.”

Murphy says the dealer network is back on track. “They will make profit this year, which is probably the first time since 2007 or 2008, depending on when the businesses took the hit for the writedown of the used car stock they were left with at the time. This is probably the first time these business owners have seen black ink in six years.

“We have other challenges out there of course. One of the biggest – and not just for us – is working capital. Next year dealers will sell more cars because the industry will be up, but their ability to stay with the industry necessitates their capacity and ability to do the deals, stock the trade-in and maybe hold that used car for a month or two and so on. That requires working capital, it’s a key challenge and we’re working with our banking partner to try and get improved working capital facilities into the network.”

Summer sales

This issue of working capital management was one of the reasons dealers were eager to spread the new car sales surge that previously defined the new registration plates in January.

Until the new six-month registration system was introduced last year, more than half of new car sales took place in the first three months of every year. That in turn meant dealers were swamped with trade-ins from these deals and that put a strain on working capital and cashflow until they could sell these on as the year progressed. In the midst of the recession and with banks drastically cutting credit lines, it put massive strain on dealers.

Now there are two bites of the new car sales cherry and two peaks a year where new cars are sold and trade-ins arrive in dealers.

Murphy was a leading advocate of the new system, particularly during his time as president of the Society of the Irish Motor Industry (SIMI) in 2010 and 2011.

“January to April now is less than it was two years ago and the middle of the year is up, so sales have smoothened out over the year. So it is doing what we asked it to do, which was to spread out the sales a bit more.”

While the recession hit every sector of society hard and forced closures in all business sectors, did car dealers make mistakes that contributed to the motor trade being one of the worst affected in Ireland? “Well, it was a perfect storm in the motor trade. I wouldn’t beat up anyone for not seeing it coming, but January 2008 was the biggest month for new-car sales on record with 47,000 new car sales. Then there was the change in tax from engine size to emissions in July 2008, which not only overhauled the pricing of new cars but affected used-car values. As a consequence of the change, you had the massive consumer shift from petrol engines to diesel, and that hit the values of older cars on the Irish fleet. And then you had the recession. What could the dealers have done differently? It was a bloody awful environment.

“The guys who suffered the most were the guys who over-extended themselves with property commitments within the motor industry or, in a lot of cases, outside the motor industry. The banks were willing contributors. And of course you had the property bubble and all that kind of stuff.”

Dealers also point to the introduction of new requirements from manufacturers that they invest in new showrooms and expand their premises. Under new EU competition rules, known as Block Exemption regulations, from October 2003 manufacturers could specify in detail the standards a dealer needed to meet to hold onto the franchise. For some premium brands, this went as far as the size and number of customer parking places at a dealership and even the colour of the floor tiles in the showroom. In many instances, it meant dealers had to look at significant investments and in some instances move their operations to greenfield sites. The market was buoyant so the bitter pill of investment was perhaps not so hard to swallow initially. But with some dealers investing tens of millions in premises, in hindsight did these requirements from manufacturers push some dealers over the edge?

“I’ve heard this being raised. I don’t really see that as being a reason for the demise of some dealers. The investment in improved facilities did come as a result of the Block Exemption rules mandating qualitative standards but even if that was never there, in an Irish environment there was investment needed in better retail facilities. In the late 1990s and the early millennium years, the showrooms that were there needed to spruce themselves up.

“Definitely some guys lost the run of themselves. I know of one dealer who invested €16 million in facilities and I said to myself, this thing is never going to pay for itself in the medium term.”

So have we learned our lesson or will we repeat the mistakes once the good times return?

"I think the dealers have learned their lesson, and so have the banks. In fairness to the banks – and I'll reference our own banking partner, Bank of Ireland – their support for the motor industry was hugely important at a time when their competitors were on the quickest bus out of the country. I'm sure for Patrick Creed [managing director of Bank of Ireland Finance] to get the continued support for the motor industry across to his board in an institution that is being battered left, right and centre was a difficult call but he's getting the payback now.

Pre-reg controversy

“As much as the banks were rightly castigated for being a contributor to the problems, absolutely we need them now to wear a different jersey. The days of extending money on the back of property are gone. You now have to look at a guy’s business plan and I’m not sure if they’re there yet in terms of the right mindset, but they’re getting there.”

Aside from the recession, the biggest change to the landscape of the Irish motor market over the last six years has been the arrival of VW Group, taking back control of its brands in Ireland.

“As with Ford, Volkswagen is a volume brand and when it came in and set up a national sales company, it was always going to aspire to getting the sales results they got. They made hay out of the Volkswagen Bank and it was good marketing. They certainly invested heavily in brand awareness.

"Having said all that, Ford in Ireland is probably one of three of the brand's European affiliates capable of delivering market leadership for Ford. Obviously Ford can be the best-selling brand in Britain, we are another market where the brand can be number one and on a good day we can get market leadership in Turkey. In all the other countries in Europe Ford doesn't have [that level of market share] and we're not close enough to get [top spot]."

So can Ford return to top spot on the Irish new-car market, given that Volkswagen looks set to be the best-selling brand for 2014, making it three years in a row on top?

“We certainly have a business objective to push hard for market leadership next year and I define that as the aggregate of new cars and new commercials. I know the focus is often on cars but we are a manufacturer of cars and vans and that’s our business and we try to do that profitably with as many unit sales as we can. We’ve a good chance of hitting that next year.”

Specifically on the car market, Murphy says Ford will certainly be closer to the top of the sales league than this year, where they have a market share of just under 10 per cent, placing them third behind Toyota on 10.7 per cent and then Volkswagen on top with 12.1 per cent.

“This year, from a passenger car perspective, it was a difficult year because we didn’t have the new Mondeo. The Mondeo this year represents one per cent of our market share and I think next year the new model will be worth 2.5 per cent to 3 per cent. That will get us back up towards a 13 per cent market share, which should see it chasing for the top spot.”

The other top-selling brand on the Irish market which has traded places for top spot is Toyota. “I think they run their company well, but I think they’re not as focussed on market share as they might have been in the past.”

Something that clearly irritates Murphy is the rise in the number of co-called “pre-registrations” on the Irish market. This is where new cars are registered by the car firm or their dealers before actually being sold to the public. In some instances it’s done to meet sales targets set by the car firm or to allow a dealer to discount the car as an “ex-demo” in instances where it’s not selling at its list price. In large volumes it can create a false impression of the scale of the new car market and will also damage residual (resale) values. Trade-in and used prices for that model start to get set based on the discounted pre-reg price on forecourts rather than the official new-car list price.

Murphy says he understands why a dealer would pre-reg a few cars, “if he’s short of hitting a target by five units then I don’t think this is a problem”. But it’s the volume of the pre-reg in the Irish market, which he estimates could be as many as 20,000 of this year’s new car registrations.

He’s surprised at some of the brands using this tactic, in particular arch-rival Volkswagen. “Why they do pre-regs is beyond me. I can understand it for some brands but I don’t understand it for Volkswagen. They’re a brand that’s well regarded and why would you undermine residuals by doing this.”

Murphy hands over to Ciarán McMahon, currently Ford's national sales director on January 1st. The change coincides with a similar handover at Toyota, where managing director David Shannon is retiring after 20 years in the role. At VW managing director Simon Elliott moved to MAN trucks in the UK over the summer and has yet to be replaced.

So there will be new faces taking the lead at the three biggest brands in Ireland. It’s a changing of the guard at the top of the Irish motor trade at a time when the market is recovering and the three brands are mapping out a new future for themselves. They’ll be hoping their tenures will not be as eventful as Murphy’s.