How are your Southern California employees reacting to the move to New Jersey? How many employees do you expect to lose, given the California real estate climate?It's hard. You affect people and their families. However, a lot of our employees came here from New Jersey (in Volvo's 2001 move to Irvine, Calif.), so it's different from the example of Nissan uprooting to Nashville. Some folks are actually moving back home. That said, you get settled in, get a routine, make new friends. So I think 40 to 60 percent won't go. We'll know where we are by the end of May. We're going to be out of this building by the end of the year, with people flowing out starting in summer because people want to move between the school years.
The first quarter has been bad for many companies, but Volvo sales were off a relatively modest 7.9 percent. You had forecast a bigger drop for the year. What's going right?We felt like we had a good first quarter, given all the variables. We are seeing (seasonally adjusted annual rates) of 14.9 and 15.1 million that we weren't seeing a few months ago. We've actually grown share in some segments. We're in some segments that are doing worse than average than the industry. So, in context to the general state of the industry, we're doing pretty well.
We think our assumption for the year is still valid, depending on where the economy goes. Part of that was predicated on our belief that this wasn't going to be the best year for the car business. Others are just catching up to reality now.
Is the redesigned S80 sedan winning over German luxury buyers or just winning back former Volvo owners?Right now, we're at about 47 percent of S80 sales being from a Volvo owner. The rest is spread all over the place. We are getting some Audi buyers, but we don't see people getting out of an E class buying the S80. We get move-ups from Toyota, Honda, VW. We also are seeing large domestic SUV owners downsizing in terms of absolute size to a four-door sedan.
Your top-volume model, the XC90, is off nearly 25 percent. Does that worry you?Sales are going as forecast. It's in its sixth year now, and all the facing competition is new or refreshed, so we expect a declining curve. But it also is the car that's held up best in its decline curve. This will lead to the new XC60 coming next year, and that will pick up some of the XC90 demand.
The XC90 will be redesigned?Yes. It's a foundational car for this brand. It's what most people identify with Volvo in this market. In six years, it's become our icon in the U.S.
Was it a mistake to put V-8 engines in the XC90 and S80? Does it conflict with Volvo's environmental image?Hindsight is a wonderful thing. When the decision was made to put the V-8 in our range, if someone had said gas would be $3.50, it would have been an even more contentious discussion. If you look at Mercedes and BMW V-8 sales, they are contracting faster than six-cylinders. There is still a home for performance derivatives for Volvo in some segments, and I think we need driver-oriented types of product. It's your credential as a luxury brand. Whether it's a V-8 or a 268-horsepower turbo-six, that option will be in the lineup. BMW's 5-series V-8 is just 12 percent of volume, but it's all about credentials. I don't know if our V-8 has changed the perception of Volvo, but people have bought a Volvo because we had a V-8, and they wouldn't if we hadn't.
The XC70 and V70 are brand new, and yet sales are off. Why is that?XC70 is where we expected it to be. V70 is missing its targets by a significant amount. The dynamics of the industry are causing some challenges. The wagon segment has been in decline for some time. Then there also is our strategic focus. The XC70 is a core component of our strategy, so the V70 isn't spending much money or support, and you're seeing the result. The consumer attaches a lot more value to the XC70 than the V70. There's the all-wheel-drive component but also how the customer perceives himself to look in his car. The XC70 is cool in its own way, whereas the V70 struggles in that light. The XC range has become like the Volvo wagon of old. It's something people are more passionate about, and they'll pay more for it.
How has the C30 launch gone? There's not much marketing.Everybody loves the C30. The style of the car stands out. That said, you build a C30 in Belgium, and your costs are in the euro and krona, and it's a tough business decision. We knew that going in. It would be nice to sell 10,000 or 15,000, but we're not planning on that. It suffers from a lack of consumer awareness. We could sell more if we invested to spend fixed marketing dollars, but it comes back to where your focus is. We knew it wasn't going to be a mass-marketing car. I'd love to sell more because it's the car that evolves our exciting design idea. People are buying it for style, and that's not something you would normally associate with Volvo.
What is the parent company doing to ease the currency exchange situation?We are concluding a strategic review of our business. Part of that involves currency hedging. Sweden is cognizant that we need sufficient volume to maintain our position. They realize the industry is cyclic and that currency is cyclic. We talk about Audi in the '80s and that it took 18 years to sell 100,000 cars again. You can't turn volume on and off like a light switch. So we balance that against currency-related profit questions.
Our dealer council has met with (Volvo Car CEO) Fredrik Arp twice in the past 120 days to make sure Sweden understands their view. They are covering us on a volume base; it's about more than how much money you made this month. We're not going to give up volume easily.
What is Volvo's approach to leasing right now?In some car lines, particularly small cars, we have to be more focused on purchase. We are presenting the option more frequently to buy or lease. But some car lines, like the XC90 and S80, we're going to compete in the segments where leasing is required.
Volvo has kept a comparably low dealer margin in comparison to other luxury brands, making up the difference with customer service index bonuses. Are there any plans to change that structure?There are no plans to make any change to our margin, up or down. It is still an issue that is raised by our dealer council. They would like us to expand the margin. We have interesting discussions on what margin is, because in the end, what you retain is key. You can set the margin anywhere you want to, but if you don't retain it, you're not any better off.
When you see Jaguar and Land Rover being acquired by Tata, do you wonder how Volvo might do under different ownership?Everybody wonders what Volvo's future is, realizing it's going to be attached to Ford. In the end, it's what kind of investments you are able to attract, based on what business case you can present. The best business case gets more resources. We have a brand with a consistent view no matter where you go.
Being a luxury brand, we have a retained margin more compelling than that of a mass brand. That gives us leverage within the Ford world. Absent Jaguar and Land Rover, it gives us even more leverage. Ford didn't keep Volvo for fun. We cover the gamut of luxury SUV, wagon and car all in one brand. Jaguar and Land Rover had to do that through a couple brands, and that's inherently less efficient.
You can reach Mark Rechtin at email@example.com