Volvo denies reported dealer cuts
A couple days back we received word from Automotive News that Volvo was looking to downsize its dealer body by 30 percent in an effort to cut costs. The Swedish automaker says that isn't going to happen. PR VP Geno Effler said that while Volvo doesn't plan to cut almost a third of its 350 US dealers, it will try to persuade its struggling dealers to call it quits. The problem with Volvo's denial is that we'd heard about Volvo closing a significant amount of dealers way back in December, before the car market took it's most recent nose dive.With Volvo sales down 14 percent for the year and constant talk about a Ford/Volvo split, we wouldn't be surprised if there are more than a handful of dealers in need of coercion. Not that the prodigious dip in sales volume has everything to do with dealers, either. Volvo's lineup isn't exactly fresh or fuel efficient, which spells disaster in this vehicle market.
[Source: Automotive News - Sub. Req.]
Reader Comments (Page 1 of 1)
P.V. 5:43PM (7/15/2008)
If Ford is going to sell Volvo, it is going to be tough, as there are many platforms shared among US Fords, Euro Fords, and Volvos. Maybe it will be like GM and Fiat, where GM and Fiat could continue using each other's platforms and such even after their separation.
As good as the new C30 may be, I haven't seen a single one on the road yet.
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P.V. 5:43PM (7/15/2008)
Whooo! First post!
Tim UF 6:20PM (7/15/2008)
why are auto manufacturers here (in the US) so afraid of the dealers?
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jstand6 6:25PM (7/15/2008)
I really don't understand all of the comments lately about Volvo's lack of fuel efficiency. I am averaging 22 mpg with my '07 S60 2.5T with 95% city driving, and I don't have a light foot (the car provides 236 lb-ft from 1,800-4,500 rpm, and I use it). On highway trips, I average 30 mpg (31-32 cruise control set at 70 mph without AC). I saw the 30 mpg highway rating on the sticker (pre-revised ratings), but I never thought I would actually see it, so I'm happy. And compared to other cars (328i sedan auto, C300, Mazda6 V6 auto, Fusion V6, etc.) the S60 gets similar or better fuel mileage.
We did have an S60 R that got notrotious mileage, but we didn't expect good mileage from that. Granted, the S40 could get better mileage than it does, but it's not completely out of line with other small cars with similar engines (pretty similar mileage as the Scion xB or Mazda3 2.3L).
I suppose Volvo could build a smaller car with a smaller engine that can get mileage in the mid- to high-30s (but would it really be a Volvo anymore?). Would that stop the Volvo = poor fuel economy comments? Perhaps they could bring some of their diesels over here... I hear the D5 offers impressive and refined performance, while returning outstanding fuel economy.
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CH 7:31PM (7/15/2008)
"I suppose Volvo could build a smaller car with a smaller engine that can get mileage in the mid- to high-30s (but would it really be a Volvo anymore?)."
They do already .... in Europe.
Gasoline and diesel engines as small as 1.6 l and 100 hp are available on the C30, S40 and V50. Even the S80 and V70 are available with a 2.0 145 hp gasoline engine, and a 2.0 136 hp/236 lb-ft diesel engine that does 40-41 mpg combined on the Euro test cycle.
But, despite the rise in fuel prices, the US may still not be ready for large Volvos with such small engines.
Mike!!ekiM 9:10PM (7/15/2008)
They sold large Volvo's with 4 cyl engines in the 1980's. Volvo offers the C30 in the US with the carte-blanche menu system, and yet, still did not offer the smaller engine. Grrrr. But, I'm resigned to the fact that I can no longer afford a Volvo.
Home heating oil has increased in price 218% in 7 years. There goes Volvo money, and also sons college money.
Jason 10:20PM (7/15/2008)
"I really don't understand all of the comments lately about Volvo's lack of fuel efficiency."
That's because the author must not be familiar with Volvo's current U.S. lineup. The C30 T5 gets really good gas mileage for a car with 227HP. High 20s.
CH 1:19AM (7/16/2008)
I agree with Chris that the latest models aren't particularly fuel efficient, but he misses the mark on some key points.
First, Volvo didn't deny that they're cutting dealers as the headline suggests. They only denied the specific number, i.e., 30%.
Second, the model line-up is quite fresh. 3 of the 9 models are in their first US model year, C30, XC70 and V70; the S80 is in its second year and the C70 its third. The S40 and V50 were all new for MY2005 and were refreshed for MY2008. That leaves only the XC90 (MY2003) and the S60 (MY2001) as really old models.
Third and most important, the biggest driving force behind Volvo's US sales decline is neither fuel efficiency or the dealers. It's the weakness of the US dollar, which has eroded Volvo's margins in the US, especially on the smaller cars.
Consequently, Volvo announced last year that it would cut dramatically the supply and marketing support of the smaller models for a planned 15% decline in US sales. The cut in dealerships ties in with this plan.
The June YTD decline is 14%, with the S40, S60 and V50 down 32-36% as planned. On the other hand, the S80 is up 12%, the V70 up 13% and the C70 up 44%. The larger, less fuel efficient models are now nearly 65% of sales, versus 60% last year ... the opposite of the industry trend ... despite the addition of the C30 in late 2007.
JIm 10:18PM (7/15/2008)
Those reading this that are old enough may remember when Porsche tried the same thing in the late '80s, the dealers sued the company for $2B and Porsche backed off. I imagine many of the mfgrs that are considering reducing their dealers are concerned about the dealer network rising up to counter with the same tactic.
Every dealer has a BIG investment and certainly doesn't want the rug pulled out. Not to mention the employees.
I saw my first C30 this weekend. Didn't give it a walk around, but to my eye it looked very nice from the back quarter. Certainly looks like the 1800 from the back and that's a good thing. Externally small.
MPG. I've got a '08 XC90 V8 that is two and a half months old. It now has over 9,000 miles. MPG on the highway is pretty consistent at 24-25 (high tank 25.5). In mixed city/freeway it's 18. Also towed a boat (~3000#) 1,200 miles and got 16. I need the tow and load ability and can live with the MPG I am getting.
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DavidOvada 6:52AM (7/16/2008)
Ciao from Italy!
This american ex-pat currently rolls in an '08 C70/D5 that gets approx 35mpg. Sveglia(wake-up) Ford. This is a fabulous ride that deserves to cross the pond.
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MikeInNC 7:39AM (7/16/2008)
I drive a 2005 S40 T5 and I'm currently averaging 28.8 mpg. About 70% of my driving is interstate but I get stuck in traffic all the time. For a nicely appointed 4 door saloon with about 220hp that is certainly decent mpg. Seems to me the S40 gets better mileage than is advertised. We average about 32.5 mpg on long trips.
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inteller 8:10AM (7/16/2008)
I can think of one they can cut immediately here in Tulsa.
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John 10:12AM (7/16/2008)
How does having less dealers help increase sales? That's one thing I've never understood in these kind of stories. Usually someone trying to sell a product wants it to be in as many locations as possible. Don't the dealers just make a cut on top of the wholesale price?
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Randy 11:32AM (7/16/2008)
When any low volume store closes the volume of sales is in theory transfered to the higher volume store(s) making the higher volume store's sales increase.
I was actually thinking that Volvo didn't have enough dealers!
CH 12:39PM (7/16/2008)
"How does having less dealers help increase sales?"
It doesn't increase total sales in the near-term, but it increases sales per dealer. It also increases transaction prices due to less intense price competition among the dealers. The result is higher profits for the dealers ... and Volvo because of lower factory to dealer incentives and dealer support costs.
Higher profits allow more investment in improving dealerships and customer service. Lower overall sales at higher prices increases resale values. The brand image improves over time, which drives sales increases in the long run.
Richard Warren 11:34AM (7/16/2008)
Some business major (recently graduated) please tell me how cutting 30% of your dealer body saves the manufacturer much money. Otherr than some support staff, brochures etc, a point costs a maker very little, the majority of the money comes out of the dealers pocket. If a dealer sells one car and is happy with it, then let them keep selling, it's exposure for the maker.
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CH 12:51PM (7/16/2008)
See my response to John above.
Richard Warren 1:02PM (7/16/2008)
CH,
In theory that sounds great, actual practice? Smaller dealers generally hold higher gross, when more dealers are in play the customer, the dealer and maker profit from it.
Dropping dealers does nothing for your nationwide service requirements. Dealers that have less competition are less apt to provide the same level of personalized service a smaller dealer can in their community.
Something else, the domestics have tired this as have some imports, general result a slide in sales.
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CH 2:26PM (7/16/2008)
Yeah, that's the theory and in practice it depends on the details of the specific circumstances, the objectives and how well the stragegy is implemented.
Volvo definitely has too many dealers. Last year, sales were under 350 cars/dealer on average. That's way lower than competitors such as Audi, BMW, MB, Acura and Lexus.
The problem is most acute in the Northeast where, too often, there are multiple dealers within a small radius. There just isn't enough customers to go around in those situations. A small struggling dealer might only be selling 2-5 cars each week and servicing a correspondingly small volume.
On the other hand, you wouldn't want to cut in places like Denver, where there are only three dealers, many miles apart, for the entire greater metropolitan area.
Besides, Volvo isn't looking to increase sales in the near-term. The strategy is higher margins at lower volumes, and to build the brand image for later growth in both sales and profitability.