Leases, marketing vital to Volvo survival plan

DETROIT -- Until new vehicles start arriving late next year, Volvo's plan for survival in the United States involves an aggressive return to leasing.

Volvo's new executive team -- including CEO Hakan Samuelsson and Tony Nicolosi, president and CEO of North America -- met last week with Volvo dealers and outlined a five-point plan to end the company's near-decade-long sales skid.

In an interview, Samuelsson made it clear that Nicolosi, who was appointed last month with an "interim" title, has won the job as head of Volvo Cars North America.

"He has the right qualities, and he's going to take this job up now 100 percent," Samuelsson said. "There is no search going on for a replacement of him. He is now going to do this job, and he has the full support and confidence from us."

Nicolosi's creation of a captive financing company, Volvo Car Financial Services, last year was a key credential. With luxury brands moving roughly half their vehicles by lease, Volvo badly trailed competitors.

"We have to be better in lease," Samuelsson said. "I mean the market, if you like it or not, half of the market is lease."

Volvo plans to increase global volume from its current 450,000 units per year to around 800,000 by 2020, with U.S. sales returning to its prerecession high of around 130,000 units. China is expected to be Volvo's largest market, with yearly volume of 200,000 units.

The plan, shared with U.S. dealers last week, includes new powertrains, new vehicles, more leasing and fresh marketing by a new global ad agency. Much of the initial effort will be geared toward the successful launch of a redesigned XC90 crossover late next year, the centerpiece of an $11 billion, five-year investment in new products and factories.

If the plan doesn't deliver, Chinese-owned Volvo will face tough decisions. Many of its 308 U.S. dealers are unhappy and their franchises unprofitable. Through October, total industry sales are up 8 percent for the year, while Volvo's U.S. sales are down 7 percent. Volvo is on track to sell about 60,000 units in the United States this year, down more than 50 percent from the company's 2004 high of 139,000. Sales have been declining every year since then.

In a discussion with journalists in Detroit last week, Volvo executives wouldn't commit to a specific U.S. sales goal beyond 100,000 in the next three years.

Nearly all aspects of the automaker's business will be getting an overhaul, including:

•  Advertising and social media: Volvo is close to naming a new ad agency to steer the company's global account. The shop will be charged with developing a global campaign that conveys to car buyers Volvo's traditional strength -- safety -- along with some new twists. Two agencies seek the Volvo account. The incumbent, Arnold Worldwide, is not in the running, said Alain Visser, senior vice president of sales, marketing and customer service. A decision could come this month.

• Leasing: Volvo will continue its aggressive return to leasing, said Nicolosi. Leasing volume declined during the recession to 10 percent of Volvo's volume, he said. This year, it will be in the 35 percent range, and he's shooting to top 40 percent next year. The company is paying a price for steering away from leases.
• "It's one reason why dealers are unhappy," Nicolosi said. "Leasing is the cornerstone of building a pipeline of return business."
• Powertrains: Lex Kerssemakers, Volvo's senior vice president of product strategy and vehicle line management, said the company has begun replacing its entire powertrain lineup with three- and four-cylinder gasoline engines with and without turbochargers; three- and four-cylinder diesel engines based on the same architecture as gasoline engines; and hybrids that use an electrified rear axle.
• Products: The V60 sport wagon returns to Volvo's U.S. lineup in January. The XC90 will be crucial to Volvo's future. It must be a home run because the scalable architecture is being designed to underpin Volvo's next stab at smaller, mid-sized C-segment cars.
• Those vehicles, likely to be marketed under the 40 series badge, will be developed with its parent, Zhejiang Geely Holding Group Co.
• Future technologies: Volvo engineers are working on autonomous cars. Other technologies Volvo plans to offer include plug-in hybrids and advanced connectivity.
• Manufacturing: There are no plans for vehicle assembly in the United States. Vehicles sold in the United States are imported from Europe.
• The company recently opened an engine plant in China, and its second assembly plant in that country began producing vehicles this month. Visser said some Chinese-made cars eventually could be exported to the United States.