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Volvo to slash dealer network

Mark Rechtin

Automotive News | December 24, 2007 - 12:01 am EST

LOS ANGELES — Struggling Volvo is asking its unprofitable and marginal dealers in the United States to give up their franchises.

Declining sales and a weak dollar have put the squeeze on Ford's Swedish luxury brand in this country. Volvo Cars of North America Inc. will announce employee job cuts soon and will shrink its 355-store retail network.

Volvo will also rejigger its marketing strategy and will focus more on larger vehicles with bigger profit margins.

"We have dealers losing money this year, last year and the year before," said Anne Belec, CEO of the U.S. sales arm. "If they couldn't make money two or three years ago, then they are going to really struggle going ahead. We want to talk with them."

Belec expects 2008 sales to fall 10 to 15 percent from this year's estimated 106,000 units. Volvo's sales peaked at 139,067 in 2004 when the small S40 and V50 wagon arrived and the XC90 hit its stride. But they've been declining ever since. The small cars have been seen as overpriced, and the S60 sedan grew old. Even though an XC70 and V70 have debuted, Volvo expects sales to slip next year because it is basically walking away from the smaller cars.

In 2004, Volvo's 350 franchise holders sold about 400 new vehicles each. If 2008 volume falls to the level Belec forecasts, sales per store would be about 260.

"Some retailers are not going to make it at these volume levels," said Belec, a 45-year-old French-Canadian who began her career at Ford of Canada and was once general marketing manager at Lincoln Mercury division. "We have to help them craft a way out. This is a voluntary approach, but we have to have a plan in place."

Belec said funds have been allocated for the 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.

Volvo's descent
U.S. sales for Ford’s Swedish luxury brand have been declining since 2004.
2007: 106,000 (est.)
2006: 115,807
2005: 123,587
2004: 139,067
2003: 134,586
2002: 110,670
2001: 125,710
2000: 123,178
Source: Automotive News Data Center

'Years too late'

Volvo needs to lose 20 percent of its stores, says David Stein, the brand's retail advisory board chairman. Stein, a multiline dealer and a partner in two Volvo stores in Austin, Texas, said the move is coming "years too late."

He said the focus needs to be on overdealered metro markets.

"For a lot of dealers, Volvo is a secondary franchise," Stein said. "It doesn't make sense to take out a bunch of small Podunk dealers who have an insignificant impact on volume."

And he said that the cuts in the network need to happen right away.

"If it takes three, four, five years to get the dealer body down, then it's a moot point, an exercise," Stein said.

Volvo headquarters and field operations won't be spared the knife, Belec said.

"If we are expecting retailers to tighten their belts, we have to look inside as well," she said. "We need to structure ourselves to be more efficient."

A plan to reduce head count should be completed in early 2008. Volvo Cars of North America has 334 employees at headquarters and regional offices.

Euro woes

While Ford Motor Co. is on the verge of selling Jaguar and Land Rover, CEO Alan Mulally has decided to hang onto Volvo. But the brand has its challenges. The weak dollar is sapping Volvo's U.S. profits. Volvo relies on U.S. sales for 28 percent of its global output. By contrast, European rival Audi sells a relatively small portion of its global volume in America.

BMW and Mercedes-Benz are somewhat insulated from exchange rate worries by producing vehicles in the United States. All Volvos are built in Europe, with no short-term plans for a North American plant.

As for currency pressures, Belec said Volvo sees "no relief for several years to come."

In 2008, she said Volvo will concentrate its marketing less on small cars such as the S40, V50 and S60. Instead, it will focus on larger vehicles such as the S80, XC70 and V70, which have higher margins.

Volvo will spend more of its marketing budget on "consumer-facing retail programs," Belec said, and walk away from the costly sponsorships and affiliations it has backed in the past. And Volvo will push annual percentage rate discounts more than leasing, programs on which the brand has depended.

Pricing policy will shift somewhat. Volvo will emphasize premium trim levels. It also will launch the "R Design" trimline featuring upgraded leather, body kits and other accessories that should bolster dealer profits.

Still, Stein doesn't think the new plan goes far enough.

"The dealers are getting tired of a cut-cut-cut strategy," he said. "We need a game plan for sustained growth. The factory talks a good game, but now it's time to see some action. The dealers are getting restless."

Volvo’s Anne Belec expects 2008 sales to fall 10 to 15 percent from this year’s estimated 106,000 units.


2,900 Posts
Closing shop is a bad idea. they need them to sell cars. Ford should consinder taking volvo and some other brands and combining them. Like GM did with Buick Pontiac GMC

84 Posts
I think Volvo's problem has a fair deal to do with increasingly aggressive pricing. I optioned out a couple of Volvo sedans recently and, while they were cheaper than their closest competition from Audi, BMW, and Mercedes, in more than a couple of instances they were still close enough in terms of msrp to cause me to raise an eyebrow and the though that I could get a...insert one of several German luxury cars here...for similar money crossed my mind more than once.

Volvo has ventured so far up the luxury ladder by this point that they may as well throw their hat into the ring altogether and make it legitimate.
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