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commadorebob

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It’s that time of year again. People who have rollover orders get upset that someone with a new order was scheduled ahead of them. But why did that happen?

Below is an oversimplified explanation of allocations. I note that I do not work for Ford. The devil is in the details, but this should help you understand what allocations are and why they are used. Grab a coffee as there really is not way to tl;dr this one.

Why Allocations?
Tim has stated he has 325 carryover orders. At a basic level, Tim took 325 too many orders for MY23. Now, that is not mostly his fault as Ford did not tell dealerships their allocation limits before they took MY23 orders, which led to Ford shutting down the order banks. But he took a gamble and this is illustrative as why allocation limits exist.

If Ford went first in; first out (FIFO), Tim would potentially have to take delivery of 325 trucks at the same time! That creates logistical issues for both Ford and the dealership but also means Tim has a massive surge of income and then the rest of the year… nothing.

The flip side of that means retail orders have to wait to be scheduled. As mentioned, Tim has 325 carryover orders. He also has 325 allocations for the year. That means it will take the entire model year to fulfill those orders despite the fact that, mathematically, Ford could fulfill all retail orders before next summer.

Long-McArthur is also a very large dealership. Your local dealership might not be. Long-McArthur has the resources to dedicate multiple people to entering Maverick orders all day whereas other dealerships may not have that ability. Should the smaller dealership be punished by FIFO ordering simply because they don’t have the staff to spam the order banks?

The allocation system is designed to allow every dealership the chance to earn vehicles to sell. It prevents a dealership from loading up the order banks because if they are told they will only get 10 trucks, there is no sense in wasting time adding an 11th order.

However, it is a bit of a catch-22. Dealerships need to sell trucks to earn allocations of trucks to sell. So, for the first few years, the Maverick allocations were earned based on Escape, Edge, and Ranger sales. The thought being markets in which those are popular would also be able to quickly sell the Maverick. That system makes sense as there is no sense sending many high-dollar vehicles to a dealership in a poorer area or Super Duty trucks to a dealership in the inner-city. Details on how allocations are earned can be found here.

Constraints
Ford, for the most part, is an assembler. Very little of the Maverick is built by Ford itself until it rolls down the assembly line. Ford works with other companies to build the parts for the Maverick. Those third-party companies have a limit on how many parts they can build at a time. This is where constraints come in.

Example: The wheel manufacturer can only produce so many rims at a time. In fact, there is opportunity cost to consider: if I am hammering this nail, I cannot be hammering that one. Both need to be hammered so the only thing we can do is allow more time so I can hammer both or bring someone else in to hammer with me (assuming we have a second hammer). If a worker is physically building an XLT rim, they cannot be building a Lariat rim. The parts manufacturer schedules how many rims of each kind to build based on what Ford wants and then plans out how to build them within a given time period. But the Laws of Physics still applies.

And then they have to ship those parts. Only so many rims can fit on a semi trailer at one time and they have to be shipped in sets of four. While Ford has a general idea of how long it takes for parts to arrive, all shipping is subject to unforeseen delays.

Ford also uses “just in time” manufacturing. That means the truck with the rims shows up just in time for Ford to use it. Ford doesn’t keep a large backlog of parts to choose from as that costs money. You need to have staff handle inventory and it takes a person longer to store and then retrieve a part than it takes for it to move directly to the assembly line. The least amount of time from accepting delivery of a part to that part being on a truck that has sold increases the speed in which Ford can make a profit on that part.

For the past couple years, there have been some main fixtures on the constraint list: mud flaps, tonneau cover, hitch. Tim confirmed at one point last year that a MY22 carryover was being overlooked specifically because it had one of those and the moment that constraint was removed, it was immediately scheduled. So, the more constraints and options you have, the longer it will take. I honestly believe there was an unwritten constraint on black-painted wheels for the Lariat that took my MY23 into the summer.

How Allocations?
Once the dealership has allocations, how do they work? Again, this is an oversimplified explanation, but think of the allocations system like the NFL draft. The number of rounds a dealership participates in depends on their allocations. So, Tim getting 22 allocations yesterday means he participated in 22 rounds.

When it is a dealership’s turn, Ford looks at the order with the lowest priority number at that dealership that they can build. So, assume all of Tim’s 325 carryover retail orders are hybrid. If Ford is not scheduling hybrids that week, Tim’s first buildable order will be an EB stock order. Once they pick a buildable order, Ford moves on to the next dealership and repeats the process. This is mainly done electronically so the 22 rounds of 3,000 dealerships takes only a few minutes for each model. We see that in the scheduling emails as they all tend to come within a 30 minute time frame allowing for email host delays.

If a dealership didn’t overbook last year or has no carryovers, their first buildable order for an allocation they earned will be a new order. Remember that the priority number is only relevant to that one dealership. It is basically the dealership telling Ford, “schedule our trucks in this order.” With carryovers moving up to 3, Ford is basically telling dealerships, “we will schedule these first unless we can’t”

Why can’t they? Ford knows they can only build so many XLTs during a given scheduling period due to the number of XLT rims they will receive (and etc. for every other part). Once Ford has eaten up the allotment of XLTs, there is nothing else they can do. Ford has to wait for the next scheduled truck of XLT rims and they are not going to idle the factory. The rest of the vehicles scheduled will not be an XLT. That also increases the chance of a new order jumping ahead of a carryover as the various trims may be more popular at a given dealership than at another.

Clean-up Allocations
Once Ford has everything scheduled, there might be allocations for that month that went unused. Ford then tries to use them by moving things around. Let’s go with a basic: a base XLT hybrid with a hitch. Ford might be out of that combination for a given week, but might have leftovers of each of those in other weeks. Ford will shift things around so that one order can be scheduled with leftovers from last week going onto a truck for this week. This is why clean-up week tends to be very light in terms of scheduling. Ford is simply plugging the holes based on the available parts and orders. All remaining unused allocations are rolled over to the next month, allowing dealerships to participate in more rounds.

Tesla doesn’t do this!
One thing to keep in mind is that Tesla isn’t really an auto manufacturer. They are a data mining company that makes cars. Why else would they have a market value far exceeding Ford’s despite selling only a third of the automobiles? (Ford sold more vehicles in CY22 than Tesla, Nissan, and Subaru combined) Tesla's product is the data those vehicles collect (something the Big 3 are catching on to).

Tesla also doesn’t use dealerships and this has caused them issues in some states. For example, there is not a Tesla showroom in Alabama because of a state law that says retail automobiles must be sold at a dealership operating under those rules. So, most people in Alabama who order a Tesla go to Atlanta or Pensacola to pick it up thus completing the purchase in those states (Alabama still gets its sales tax, though). Or they "complete the sale in Nevada" and have it shipped to them.

Why do these laws exist? To protect jobs. Every dealership is going to have dozens, if not over 100 employees each. Multiply that by 3,000 Ford dealerships and you see that there are a lot of jobs dependent on the dealership network. All of them want Mavericks this month.

Conclusion
If you hate the allocation system, don’t blame Ford or the dealerships. Blame the government. The dealer network is extremely protected and Ford has no way of changing that. State laws and union contracts mean that Ford’s hands are tied. The only thing they can do is come up with a way to evenly distribute vehicles. At least we have the ability to place a retail order. My understanding with Toyota is they don’t take them at all.

And this will die down. Maverick up until now has been pretty much built-to-order with backed-up orders. Bronco Sport used to be the same, but you can pretty much walk into a dealership right now and get one or place an order that will be scheduled next week. Even Bronco is getting to the point where (except for extremely limited trims) you can place an order and get it fairly quickly.

The allocation system is designed to ensure dealerships get stock orders. It was never designed to be exclusive to retail. The pandemic shutdown created a pent-up demand Ford is finally starting to clear. In the pre-pandemic era, all retails were scheduled within a couple weeks because there were no retail orders waiting (hell, my dad had to explain to his salesman how to place a retail order for a 2010 Taurus). It will take the better part of a decade to return to a pre-pandemic economy.

We are just caught in the middle.
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Waterick

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Great little write up. I guess allocations have their reasons, but it sure would be nice if potential customers knew what they were too! I believe you are right in that things will (somewhat) return to pre-pandemic normalcy with time.
 

whizwart

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On Tesla, they do have a few corporate owned dealerships. One of the interesting tricks they are using to get around state law is to build on Tribal lands which are exempt .https://apnews.com/article/technology-environment-and-nature-business-native-americans-pueblo-65235c11caa91c93ea845108f078b0b9
 

brandless

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The allocation system is designed to protect small dealers from large dealers in the same area ordering all of a particular vehicle so that the small dealer has nothing to sell. It is a constraint on the manufacturer, not something that they impose.

As was mentioned, Long-McArthur is one of those large dealerships, and even though they didn't know exactly what their allocations would be, they apparently placed over 400 orders (low estimate if they had 325 rollovers) for MY23 Mavericks. If you assume that Ford was going to build about 100,000 Mavericks, was it reasonable for them to expect that they would get 1 out of every 250? There are ~3000 Ford dealerships in the US.

FIFO works fine, if you don't have the dealerships, which is how Tesla gets away with it. They saw how the dealership system works and decided to work around it. Ford can't get around it because they are bound to the dealership system by contract and by law (in many states).

That doesn't mean that Ford couldn't have handled it better, but they can't just ignore the allocations, and they are required to make sure that every dealership, no matter how small, has the opportunity to order cars for sale (and get them delivered).
 

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Sorry, a rehash of much that was said above, but I had that on my chest for a while, with no place to put it.

Athough, I do blame the dealerships, because they are the ones that lobby for the laws.
 

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Mav_RICK

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Sorry, a rehash of much that was said above, but I had that on my chest for a while, with no place to put it.

Athough, I do blame the dealerships, because they are the ones that lobby for the laws.
I don't understand. Dealerships should not lobby for their very existence?
 

Mav_RICK

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The allocation system is designed to protect small dealers from large dealers in the same area ordering all of a particular vehicle so that the small dealer has nothing to sell. It is a constraint on the manufacturer, not something that they impose.

As was mentioned, Long-McArthur is one of those large dealerships, and even though they didn't know exactly what their allocations would be, they apparently placed over 400 orders (low estimate if they had 325 rollovers) for MY23 Mavericks. If you assume that Ford was going to build about 100,000 Mavericks, was it reasonable for them to expect that they would get 1 out of every 250? There are ~3000 Ford dealerships in the US.

FIFO works fine, if you don't have the dealerships, which is how Tesla gets away with it. They saw how the dealership system works and decided to work around it. Ford can't get around it because they are bound to the dealership system by contract and by law (in many states).

That doesn't mean that Ford couldn't have handled it better, but they can't just ignore the allocations, and they are required to make sure that every dealership, no matter how small, has the opportunity to order cars for sale (and get them delivered).
Technically Long McArthur is not a large dealership. I was born and raised in Salina and lived there 40 years of my life and I have seen much larger dealerships than what they are. They are a mid sized dealership at best. They sell lots of certain vehicles, especially trucks. They work hard at what they do and are successful at doing it.

If Tesla sold as many models and variants of those models as Ford FIFO wouldn't work for them either. Having said that I think Ford should scale down their offerings because they clearly have issues keeping up.
 

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On this forum all we are allowed to bitch about is Ford and dealerships it seems. The issues causing problems with the automotive industry are far reaching and are not limited to the individual manufacturers. I'm fine with the posting rules here due to the nature of the forum but all need to remember lots of what goes on is bigger than Ford.
 

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I don't understand. Dealerships should not lobby for their very existence?
I don't think anyone is saying dealerships can't lobby, but quite a few of the things they have lobbied for are anti-competitive and anti-consumer. Restricting new car sales to franchised dealers rather than independent or corporate ones. Restricting the placement of same brand franchisees. Hell, there's a bill in Oklahoma to ban over-the-air updates, in part to make sure you have to bring your car to a service department. Plus, all this protects the dealers ability to haggle. I mean, besides buying a house, there's almost no other product where you consistently have to haggle over the price the way you do for a car.
 

Mav_RICK

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I don't think anyone is saying dealerships can't lobby, but quite a few of the things they have lobbied for are anti-competitive and anti-consumer. Restricting new car sales to franchised dealers rather than independent or corporate ones. Restricting the placement of same brand franchisees. Hell, there's a bill in Oklahoma to ban over-the-air updates, in part to make sure you have to bring your car to a service department. Plus, all this protects the dealers ability to haggle. I mean, besides buying a house, there's almost no other product where you consistently have to haggle over the price the way you do for a car.
But haggling used to get you cars below MSRP. We used to think that was normal. Looks to me like lots of Tesla buyers should have haggled price seeing what's happened to those prices lately.
 
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mdsalemi

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The Ford of today is not the Ford of just a few years ago. Not that long ago, a dealer could order vehicles for inventory "on the lot". They knew what sold in their market, and what they could sell. So there was no problem ordering cars and trucks to have on display since they knew they could sell them.

I'm told that today, a dealer has to have a customer order before they can order a vehicle, so no more "ordering for the lot". I cannot believe that is 100% true but that's my understanding; however my dealer in Michigan also said that Ford was building ill-specified F-series that my dealer couldn't easily sell in his market. They couldn't get the trucks they needed due to...yeah, supply constraints.

The entire allocation nonsense caused in part by covid and also in part by just bad management decisions (single source suppliers) has thrown a huge wrench into the works. So none of the old rules of a just a few years ago completely apply. We used to routinely order vehicles and it was rarely more than a 4-8 week period from order to delivery. That's ancient history today.

As for the JIT, well that's not exactly true. It's more a game with accounting than anything else. Ask anyone who has worked in automotive manufacturing. Textbook JIT simply doesn't work. You cannot risk shutting down an assembly line because a tractor trailer overturned, or there was a snowstorm or whatever. What is more likely is that the suppliers carry the burden of inventory. Parts are shipped to the assembly plant but not booked until the manufacturer retrieves them. This was explained to me years ago by a friend in manufacturing at Wixom Assembly (now long gone) when I asked why there were HUNDREDS of trailers in the parking lot. He laughed and explained that it's the "parts warehouse", and that as items are needed for manufacturing they are fetched from the trailers and then booked as shipped/received. But to think that there's finely tuned machine like the Swiss trains with trucks arriving just in time or JIT as they are needed, well, that wouldn't really work.

We're all just venting because we are all tired of the new reality.
 

dags1207

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Amazing write up. A lot of people need to read this and take things with a grain of salt. Yes it sucks, but it is part of the process.
 

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The allocation system is designed to protect small dealers
False, the allocation system is to incentivize all dealers to sell more higher profit vehicles. If it was based upon previous years Maverick orders only, then all dealer would get allocations based upon how well they sold Mavericks. Small sales would result in small allocation and large sales would result in higher allocation. It would all make sense and be fair.

But Ford does not just look at Maverick sales, they also factor in the sale of higher margin vehicles (Ranger, Escape, Bronco Sport) since they make more money on them.
 

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On this forum all we are allowed to bitch about is Ford and dealerships it seems. The issues causing problems with the automotive industry are far reaching and are not limited to the individual manufacturers. I'm fine with the posting rules here due to the nature of the forum but all need to remember lots of what goes on is bigger than Ford.
GM is idling 2 truck plants for a week for a shortage of axles, not that there is a shortage of trucks in general.
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