As technology makes automobiles more reliable, reducing the amount of revenue dealerships earn from repairs and maintenance, Volvo is looking toward an all-inclusive vehicle subscription service to give its dealers a new way to boost profits.
Anders Gustafsson, president and CEO of Volvo Cars USA, told dealers during a Los Angeles auto show last month that newly developed electric cars promise to reduce customer service income by up to 30 percent. Autonomous vehicles could reduce profit margins even further.
"Dealerships will earn less money unless they develop a business model of selling more to every customer in a structured way," he said.
That's the genesis of Care by Volvo, a new service in which consumers pick the car they want online and then make monthly payments that cover insurance, service and maintenance. Prices start at $600 per month, not including local taxes and fees.
The service launched with the new XC40 compact SUV, with the first vehicles eligible for the program scheduled for delivery next spring. Additional models will be rolled into the program in the future.
"It's not just a new car, but a new way to own a car," Gustafsson said.
Volvo dealers "have been through a lot" in past years, he said, including new ownership and executive leadership as well as a sales slump that's starting to rebound. The profit margins on new car sales have fallen to about 1.6 percent — about half of what Gustafsson would like to see. A recent in-house survey of Volvo dealers "didn't come in as good as we hoped."
"There was some confusion about the plans for electrification and other technologies," Gustafsson said, as well as the dizzying number of new initiatives the automaker is undertaking — including a $1 billion manufacturing campus in Berkeley County that will begin production next year — and new models that are being introduced.
There were fears, he said, that Volvo might "start to push things in an unhealthy way."
So Gustafsson held regional meetings over a 10-day period to visit with each of Volvo's roughly 300 dealers, both to hear their concerns and assure them that better days are ahead.
Volvo's dealers are fiercely loyal to the brand, he said, but they have a problem with profitability.
Care by Volvo aims to give dealers an edge by eliminating all of the third-parties — such as tire retailers, quickie oil change places and parts stores — that are trying to take a bite of the maintenance and repair pie.
"Everyone wants to take a share of our relationship with customers — we're trying to keep that from happening," Gustafsson said.
The program's annual 15,000-mile allowance includes tire and wheel damage protection, wear-and-tear replacements including wipers and brakes and all factory-scheduled maintenance. It also includes roadside assistance in emergencies. Customers get a car for a two-year period without having to worry about coming up with a down payment.
Traditional sales and leases will still be an option, but Volvo is betting that consumers would rather pay a flat rate each month for all their vehicle needs — except gas fill-ups.
When the two-year subscription period ends, consumers can buy the car or sign up for a different model, with Volvo taking back the old vehicle. That solves another problem: Giving Volvo more control over sales of its used vehicles instead of those cars winding up as trade-ins on some other automaker's lot.
The subscription model has been used in European countries for years. Volvo hopes it will be just as popular in the United States. Hakan Samuelsson, the automaker's CEO, says he expects one out of every five Volvos delivered by 2023 will be a part of the subscription program.