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Volvo's North American chief: Dealers are open to closing shop

Volvo's Doug Speck: Starting next year, remaining dealers in the top 20 markets should show 25 percent sales gains.
LOS ANGELES — Volvo says it is making progress persuading some dealers to give up their franchises as part of an effort to improve profitability for the overall network.

The automaker will pay some dealers in low-volume metro markets to close their stores. Doug Speck, the new president of Volvo Cars of North America, says he wants the deals done by year end.

Speck says Volvo has talked with all targeted dealers, and only a couple have insisted that they stay with the franchise. Many are willing to negotiate a buyout, he says.

"The program is voluntary," Speck says. "If we can't come to a solution with a dealer about stepping down, then we get back to selling Volvos. It's not like if one guy says no we go to the other guys in the area. We need to close specific locations."

Volvo is focusing on its top 20 markets, which encompass 157 of the brand's 355 dealers and represent 60 to 65 percent of sales. Volvo has not said how many dealers it wants to cut, nor is it disclosing buyout terms.

Speck says remaining dealers in the top 20 markets should show 25 percent sales gains starting in 2009. After peaking at 139,067 units in 2004, Volvo hoped to hit 200,000 U.S. sales by 2010. Instead, sales have fallen. This year they are projected in the 95,000 range.

Says David Stein, Volvo retail advisory board chairman and a partner at two Volvo stores near Austin, Texas: "There's an overwhelming consensus that if Volvo needs to do this, then do it privately and quickly."

Stein adds: "The dealers are still restless. We're waiting for change and leadership and a renewed sense of trust between factory and dealers. The Volvo dealer body has not been happy for a while."

Not that a Volvo franchise is a dog, says Brady Schmidt, president of National Business Brokers in Irvine, Calif. The company specializes in brokering dealership transactions.

"Depending on the market, Volvo is a desirable franchise," Schmidt says. "Volvo has a loyal customer base and is known for good parts and service absorption. To fold Volvo into an existing operation is a good proposition, but stand-alone stores are hit and miss for profitability."

Closing locations could actually hurt Volvo, Schmidt says. "If your local Volvo dealer closes and the next nearest dealer is eight miles farther away for service, that factors into your decision the next time you buy a car." 

You can reach Mark Rechtin at mrechtin@crain.com

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