Volvo is adopting the the Big 2.8's' overarching management strategy for '07: cut your way to prosperity. Automotive News [AN, sub] reports that Volvo's sliding sales have reached the point where the brand sells just 260 vehicles per dealer per year. FoMoCo's Swedish division is taking action, "asking its unprofitable and marginal dealers in the United States to give up their franchises." Asking? As in pretty please? The article takes its sweet time getting to the meat of the matter– how much Ford's going to pay these svag dealers to shutter their showrooms– and then serves-up a side dish. AN reveals that Volvo U.S. CEO Anne Belec has already allocated funds for the buyout program but "declined to say how much or how they would be used. Neither would she say how many stores are targeted for closing but made clear that it is more than a handful." I think they forgot to ask "Can you be any more vague?" In terms of actual news, Volvo's abandoning its sponsorship program (goodbye tennis) and leasing programs (in favor of low-interest loans), and focusing its marketing on larger and more heavily loaded cars (just in time for the compact C30's arrival). Volvo's retail advisory board chairman and store owner Ben Stein is not impressed. "The dealers are getting tired of a cut-cut-cut strategy," he said. "We need a game plan for sustained growth." Ya think?
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There was once when VOLVO cars were boxy and SAFE. Very SAFE. Now with thier current record, what do you expect????
musah–what’s their current record? have they fallen in safety or something?
Slightly off-topic but I’ve been wondering this for a while; any idea what the marginal cost per dealer is for an automaker? Besides floorplan financing, sales and service training, and some administrative oversight, what else is a company like Volvo paying for?
turbosaab… the really big one is reputation.
A bad dealer can, and will, turn off thousands of buyers from ever gracing their showroom.
We currently have five Volvo dealers in the metro-Atlanta area. That averages out to one per million… which is OK, but the close proximity of these dealers makes it extremely difficult for them to realize good margins on new car retail sales.
One of those dealers (I won’t mention the name) tried to offer one of my customers a 4 figured bill for three items that ended up costing less than $100. I already knew business was down considerably for them (their buyers haven’t been attending the dealer auctions as often) but this was pretty much a record low. They wanted to charge $450 to replace a wooden transmission handle. It had a small 1/4 inch chip on it. They also wanted $700+ to replace the entire a/c system because it had a whistle for a few seconds when you turned it on. The a/c was fine.
The stalk ended up costing $35, the a/c refill was $50, and a so-called $300+ rear tailgate interior panel simply needed $3 in clips. So long as I live I’ll never forget the difference between those ‘dealer’ costs and the real world cost.
Are they bad people? No. These folks are just trapped in a business model that no longer works. Ford realizes it and they’re taking the right action. I just wish they would do the same thing for their parts department.
If they could warranty the failed ABS modules, broken odometers, and busted door hinges that would be even better. But all those problems were there before Ford bought em’… and they fixed the quality issues for the models that followed. Now the so-called lifetime fluid in the 5-speed automatics… that’s another story.
“If they could warranty the failed ABS modules, broken odometers, and busted door hinges that would be even better. ”
I was once a Volvo fan, but they completely lost the plot and it started before the Ford takeover. Volvo made a major strategic decision in the 1990s to abandon it’s safe family vehicle history and go after Fashion. It also gave up on rear wheel drive and went with an all front wheel drive program. One niche of Volvo buyers for decades had been those looking for a bargain priced Benz/BMW alternative. That part of the market was tossed overboard with the front wheel drive changeover. No, all wheel drive versions of front wheel drive platforms doesn’t change the story.
Today we are left with Volvo as just another competitor for Audi, Acura and the lower end Lexuses. They don’t have a price, safety, reliability or dealer experience advantage against those players, so why buy a Volvo?
Volvo should have built the world’s finest minivan in the 1990s to continue to capitalize on their family vehicle market position, but that was deemed too unfashionable. Instead we got the slow selling C70 coupe and convertible built in a bizarre joint venture with Walkinshaw of England. The cars had lots of problems and the marriage was annulled.
I also don’t understand why Volvo has pursued a customer antagonistic method of trying to manage down it’s warranty costs by refusing the acknowledge responsibilities for faults in ABS controllers, throttle position sensors, badly welded door hinges, early failing and hard to replace A/C evaporators and more. With the ABS controller nightmare they refused to issue a recall because ABS defects are not “safety related components”. Hmmm, when they sold the cars they sure advertised ABS as a safety feature, but when it doesn’t work it isn’t safety related.
All in all the brand is now a strategic mess. There is really no good reason to buy a Volvo now instead of a competing vehicle unless you happen to be a North American who wants a station wagon. I suppose that the Volvo geniuses will now stop building station wagons because they aren’t COOL enough.
Volvo chasing cool and telling it’s burned customers tough luck is the one two punch which has sent the market looking elsewhere. The only advantage Volvo has is that Saab is even more screwed up.
Somehow I don’t think that bringing in a Ford lifer to run Volvo is going to do anything to fix the problems. This from Ann’s bio: “Prior to joining Volvo, Bélec held positions as Director of Sales Planning and Distribution for Ford Motor Company, Network Business Development Manager and General Marketing Manager at Lincoln-Mercury Division and Worldwide Marketing Plans Manager (Product Development) at Ford.”
Considering the mess Ford has gotten itself into I can’t imagine why someone with a resume item like “General Marking Manager at Lincoln-Mercury” would be able to get any job, let alone the top job!
Steven… that makes sense. However in the Atlanta example you describe, I don’t see how cutting dealers would help. On the sales side, it seems pretty clear that 5 dealers competing against each other on price are going to sell more cars than a monopoly would. On the service side, I’d think the competition for service customers would lead to better service; imagine if the $450 shift knob dealer was the only game in town, do you think they’d treat their customers any better if they knew they had them trapped?
Here in Southern Maine we have a one-dealer situation for SAAB, and while I don’t think they are crooks, they could certainly benefit from some competition. Sales department is a complete waste of time, MSRP (which on SAABs is a joke, as I’m sure you all know) or take a hike. On the service side, what keeps them honest on the service side is the SAAB customer satisfaction surveys. Which makes me wonder, if Volvo shared your view that reputation was the biggest cost, why not audit the dealers for quality (using surveys, secret shoppers, etc) and cut out the based on those results?
Thank you JTHorner (above email) because you got me to thinking.
Why do car companies make changes? Volvo had a nice niche for a small compnay and then they made “cool” and stupid changes. I love station wagons and hate SUVs and have no use for 2 door cars. I have definitely been out of touch with the mainstream for decades but aren’t there enough of us out of touch people to satisfy a niche player?
Maybe not and that is why car companies scamble desparately to fill their percieved product line gaps, become confused, and sometimes lose their way.
Volvo’s reputation was built on safety, sports car performance, and durability. Think PV544 and Amazon P120. Legislated safety standards leveled that playing field. Ford excised performance and durability. High prices alone do not a luxury car make.
In Europe, Volvo lost their safety title a looooooong time ago. Renault are now the queens of safe cars with their sister company, Nissan, building “the safest car EuroNCAP have ever tested”, the Nissan Qashqai.
Volvo are just known as cars from “nice people”. Non-distinctive, inoffensive cars.
“Volvo’s reputation was built on safety, sports car performance, and durability. Think PV544 and Amazon P120.”
Right you are! On top of that, they were distinctive. My father was a Volvo salesman in the 1970s and I spent many a day as a youngster hanging around the little two car showroom with him. I became so knowledgeable about the cars that on a busy Saturday he would ask customers if they minded hearing about the car from his 8th grade son while he was helping someone else. One of my happiest memories is when he forgot that he had handed someone off to me until over an hour later when the folks came over to tell him they wanted that new 145 wagon. He split the commission check with me on their insistence :).
A US buyer choosing a 4 cylinder Volvo wagon in 1972 instead of a low end Chevy Impala for the same price was making a very conscious decision to value efficiency, nimble handling, build quality, safety engineering and the like over the entirely different charms of a V-8 barge. We would describe features like the extensive multi-step paint process, stainless steel screw on hub caps, four wheel disk brakes with split diagonal circuits, completely independent hand brake system and so on as a matter of attention to detail which would serve the customer well over the long haul. No, we didn’t expect to see you back in 3 years to trade in your by then barely warmed up Volvo on a new one, but please do tell your friends about us. Volvo was a consciously anti-fashion-crazed purchase.
Today Volvo isn’t priced up against Chevrolet, it is against Cadillac and other luxury brands. Volvo was NOT a luxury car in it’s first decades in the US and it really doesn’t compete well in that class today. Today it is just another player riding the whims of fashion. Up one day, down the next. A V-8 powered gas guzzling XC90 is about the most un-Volvo beast I can imagine, yet for a few days it was Volvo’s hot ticket.
Group think seems to infest almost every company, and Volvo has fallen victim to it. The sale to Ford happened at a time when the group think attitude was merge-or-die. GM got into a big grand alliance strategy in those days which is has now gotten out of. BMW bought Rover only to later hand over the keys to new owners for free. VW and BMW beat each other silly for the rights to buy long struggling Rolls-Royce. VW won, but neglected to secure the separate rights to the Rolls-Royce name which BMW then bought and used as a badge on a new vehicle which had exactly ZERO Rolls-Royce heritage. In that frenzy Volvo Corp. decided to sell Volvo Cars to Ford, but that decision was a consequence of the fact that they had already given up on wanting to be anything unique and special. It is all very sad.
Unfortunately, It’s probably the more rural dealers that are the underperforming ones. Which means that customers will either have to drive further for Volvo sales/service or buy another brand.
KatiePuckrik, Nissan really sells a French car called the Qashqai? In English, that translates as the Nissan Tribe-from-SouthEast-Iran. Old Qashqai and Khamseh Federation rugs are vibrant and spontaneous, but I can’t see what that has to do with cars.
chuckR
Huh? What are you talking about?
I think I am seeing a trend here. There seems to be a real downside to expanding ones product line in the car business. Volvo was popular when they had a couple models that screamed – VOLVO!
Volkswagen also seems to have too many models, as well as a few other manufacturers.
Is it possible to go back? What are the penalties for reducing volume? This story talks about the need and cost to shed dealers. Unions have to be a problem, as well as the book cost of shutting a factory. I guess it’s REALLY hard to go back to the roots. Is it possible? A good idea?
Interesting theory Landcrusher.
I would argue that there is a lot more fragmentation of today’s buyers vs. those of 15 to 20 years ago. SUV’s, CUV’s, Hybrids, Premium pickups of varying sizes… and we’re not even getting to the fact that so many manufacuters are simply entering into areas that would have been verboten back in the days of yore.
Some would say that the peak time for Volvo was back when they had a 240, 740, 940 and 960 to choose from. All boxy, square, safe and you could them in any shape as long as it was a sedan or wagon. I disagree. What’s killing Volvo now is that everyone is simply taking on everyone else and the company simply does not have the products to compete at some of the larger segments.
The S40, S60 and S80 can not beat out most of their Japanese and German competitors when you look at their current asking prices. Most folks don’t think, “Hmmm… I can get $8000 off an S60. They think, “Hey, I want a BMW/Audi/Lexus/Mercedes” and they use the MSRP as a general indicator of what price level they shoul begin their car search process.
Now you can also throw in the XC90, V70, C30 and XC70 into the mix. 7 vehicles are far greater than the 4 of that they had back in 1993 (or the 3 they had in 1990) but there are a slew of names they need to fight against even in those niche markets. The fellow looking at a wagon may also take a gander at the SUV’s and/or CUV’s of other manufacturers. That wasn’t the case when Volvo was offering up it’s classic square bodies. The C30, a very unique duck in the automotive waters, still has to contend with Mini, Honda, VW, Audi, Nissan, and perhaps Toyota if they decide to move the Tc upscale in the next model run.
In this day and age, it’s hard to find even one car that doesn’t have six other alternatives in today’s market. That wasn’t the case in the ‘Good Old Days’ of Volvo.
One other note. I always felt that the Five Hundred should have been marketed as a ‘Volvo 260’. Volvo still has plenty of cache in today’s market and one of the reasons why the 850 was so successful in the mid-1990’s was that it appeared to be a good replacement for those who wanted a Camry with a bit more of an upscale feel to it (they went after many of the same buyers). The Five Hundred should have been marketed in a similar way … but with a far nicer dashboard and door panels than can be found in the 500. All wheel drive could have been a part of the package as well. I can just imagine the tagline, “The Volvo That Has It All.”
It’s always amazed how folks who hate American cars will still gladly consider a Volvo due to it’s reputation for safety and durability. I think many mainstream buyers are still looking for cars that are unexciting to drive, but comfortable and pleasurable to own. Volvo may be Ford’s answer to those ‘import only’ buyers in that particular mindframe.
katie
Not much of teh funny if I have to explain. I thought it was odd that a Japanese car company would use the name of an Iranian tribe for a car marketed in France.