Dealer shift: Ford is expected to sign a deal with Alibaba allowing the US car maker to sell its cars on Tmall, the Chinese e-commerce firm’s online retail arm, which is launching an automated vending machine store that will allow customers to test drive cars from a parkade. Picture: REUTERS
Dealer shift: Ford is expected to sign a deal with Alibaba allowing the US car maker to sell its cars on Tmall, the Chinese e-commerce firm’s online retail arm, which is launching an automated vending machine store that will allow customers to test drive cars from a parkade. Picture: REUTERS

Beijing - Ford is on the brink of signing a deal with Alibaba that may allow the US car maker to test selling cars to consumers in China through Alibaba’s online retail arm, Tmall, as well as via a new "auto vending machine" store concept, according to a Ford source familiar with the matter.

Representatives of Ford and Alibaba, including Ford executive chairman Bill Ford Jr and CEO Jim Hackett, are expected to be in Hangzhou on Thursday to sign a letter of intent outlining the scope of the partnership.

According to the source, who did not want to be named because he was not authorised to speak to the media, the deal was intended to position the car maker for an emerging Chinese marketplace where more cars could be sold online.

The partnership would be part of Ford’s effort to overhaul its China strategy to revive the growth momentum it had lost in recent months.

Ford’s global chief spokesman, Mark Truby, said the company was expected to make an announcement on Thursday in Hangzhou, where Alibaba is based, but declined to comment in advance.

Alibaba spokeswoman Crystal Liu declined to comment.

The source said the proposal could mean that cars purchased online were delivered to buyers by franchised Ford retail stores, which would maintain and repair the vehicles.

But Ford could also use Tmall’s new retail concept, called the automotive vending machine — a multistorey parking garage that partly resembles a giant vending machine — to sell directly to consumers, the source said.

Those cars could come directly from Ford or from its dealers but the details were still to be worked out.

According to Alibaba, consumers can use their phones to browse through the cars garaged in the store and choose to either immediately buy one or test drive it. The vehicle would be delivered to them on the ground floor.

The model allows shoppers with good credit to purchase their new ride with a 10% down payment and then make monthly payments for the car purchase through Alibaba’s affiliate Alipay, according to Alibaba.

Ford believed dealers were likely to agree to this direct retailing model because they would still get to service cars sold through Tmall, the Ford source said.

The move, though, could be potentially problematic for dealers, some industry experts said.

"When online sales and direct sales volume was small that’s one thing. But if this format gains steam, it would definitely impact dealers," said Yale Zhang, the head of Shanghai consultancy Automotive Foresight. "Retail innovation is great, but is by its nature disruptive and can’t keep everyone happy."

The danger to dealers was that they could lose out not only on a lot of car sales but also the potentially lucrative vehicle financing aspect of their traditional business.

Direct selling by automotive brands is not always possible in many markets around the world. In the US, for example, the political clout of franchise car dealer operators means direct selling is largely not possible except for a small number of states.

The source said Ford was lagging "behind in using big data" to monitor sales trends and effectively market its passenger vehicles and the move to online sales as well as the access to Tmall’s huge database of information on consumers would help it to catch up.

Online vehicle sales volumes were currently limited in China because car buyers wanted to be able to see, touch and drive the available models before buying them, said Zhang. The ability to test drive a car ordered online could change that.

Ford’s Chinese sales have been sluggish in recent months in part because it has failed to catch on to rapidly changing trends in the marketplace, including the rise of entry-level cars popular in smaller and less well-known cities, where demand is booming.

Ford’s sales in the first 10 months of 2017 were 938,570, a decline of 5% from the same period in 2016, against a 2.2% gain to 3.13-million for rival General Motors.

Reuters

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