Ford of Britain is to slash the number of new cars in its distribution pipeline and reward its best dealers at the expense of poor performers.

Speaking at the Birmingham motor show, Ford UK chairman and managing director Ian McAllister described the changes as “probably our biggest in 50 years”.

The UK's No1 car seller has been working for a year on a raft of sweeping changes designed to squeeze much of the cost out of distribution.

At the show Ford officially launched its lower prices and the plan to offer the entire range online direct to retail buyers at a discount. Mr McAllister said lower prices had to be financed by distribution savings.

He said the number of Fords “on the ground” in the UK would fall from around 120,000 to 15,000 by the end of 2002. The volume held by dealers would be radically reduced, cutting their costs.

By 2004, Ford will base its customer satisfaction payments to dealers on their performance relative to that of others in the network.

“They will be assessed on a score we set as acceptable,” said Mr McAllister. “If an under-performing dealer gets only half the potential payment, the balance will be paid to others in the network who do better. So Ford doesn't save money – the dealers performing best are paid double.” Over the next two years, he said, a change in the distribution system would require dealers to take supplied cars onto their balance sheets.

Mr McAllister said the lean distribution system would mean holding cars in compounds until they were needed for delivery to customers.

“We are still evaluating the likely effect of the twin peaks of March and September,” he said. “We will have to build cars to meet expected demand.”

Mr McAllister said the approach would enable dealers to plan their businesses more effectively. It would also reduce the number of costly movements of vehicles to fulfill orders. Cars would be ordered from Ford.

“About 40% of our sales transactions mean swopping rather than supplying,” he said. “I believe the estimate that distribution accounts for 30% of overall cost is correct and we intend to reduce it significantly.”

Mr McAllister said Ford of Britain was investing heavily in its computer system so that all communications with dealers would be made over its intranet. At the end of the year Ford would end all paper transaction between the manufacturers and its retail network. These measures are part of a bigger programme which includes FordJourney.com which will enable people to buy direct over the internet.

“This is part of the future of retailing although I have no idea how many people will want to buy a car this way,” he said. Dealers would be paid commission and make contact with a customer for possible future aftersales work. The dealer might also negotiate a part exchange deal.