As Volvo unveiled the details of Care By Volvo at the Los Angeles Auto Show, Håkan Samuelsson, CEO of Volvo Car Corp., and Anders Gustafsson, CEO of Volvo Cars North America, took questions in a roundtable with journalists. Here’s what we learned.
What are the details of the program?
Samuelsson: We are targeting a fast-growing new segment (with the XC40). Every car we sell there is growth for us. But you don’t have to buy the car in the future. We are responding to new movements in the customer base, where owning the car is not something you absolutely need. Mobile phones are done on a subscription basis. It’s hassle-free, with a flat fee, and in 24 months you get a new one. This is not just financing. It’s Care By Volvo. We think this will be bought by a lot of people because it’s hassle-free and transparent. It’s no longer important to own, but it is important to have a hassle-free experience. It’s a hassle to negotiate and think you know the actual price of the car, but there’s something you forgot—winter tires, insurance, the down payment. This is already negotiated.
Everybody pays the same price? But insurance costs are dramatically different in certain parts of the country …
Samuelsson: And this makes this attractive for younger people in bigger cities, because you are penalized with insurance payments. Care By Volvo is independent of who you are or where you live; all you pay for is fuel. You sign up for a subscription, and the role of the retailer is to demonstrate the car, hand it over to the driver, explain its features and handle repairs until the handover in 24 months. Our insurance is partnered through Liberty Mutual. Customers just want the total package. They don’t care who services, finances, insures the car. We will start with the XC40 in eight countries, including the U.S. We are in a new world with electric cars, and if there is new technology, then there is no residual value on the market for the old cars. This will be even more important.
Gustafsson: The subscription costs $600 a month (plus tax and registration fees) for Momentum trim levels and $700 per month for R Design. There is no down payment, and it includes insurance and financing for 24 months. The whole idea is loyalty. Our products are great. The customer gets communications as he gets close to the end of his 24 months about what to do next. Of course, there’s money on the side for dent repairs. That gets handled like a lease return.
So what do you do with the used cars after two years?
Samuelsson: If you hand back the car in normal condition, you get a new car. It’s common sense. This is a more efficient way of distributing and building cars. It’s not the case where we build cars, and the dealer sells them. If you respond to our communications early enough before when you turn in the vehicle, we can even build the exact color and trim you want for your next car.
Gustafsson: My background is in financing and rental fleets, so I know that we need to behave around this. The automotive business is both new and used cars. We want to keep our products in our own family; we call it a value chain. Dealers need to accept and understand this partnership. But we know we cannot build up a big used car stock after 24 months or else there will be a push on residual values. We will take care of the residual values. And there will be a used car subscription service, too. Some dealers have been suspicious when we talked about the program. I have talked with 300 dealers in the past seven weeks.
Samuelsson: We have a more efficient system, where we have profit to share. We are not trying to take over the dealers’ business. We are going to share our profit, as we have always done with our partners.