Volvo adds performance targets to margin

LAS VEGAS -- Volvo Car USA has revamped its dealer margin, tying part of it to performance, says its U.S. chief.

The total dealer margin remains at 14 percent, but some of it must be earned as a bonus. To get the full 14 percent, dealers have to meet certain criteria:

• 8 percent is the base margin
• 3 percent bonus is paid to all dealers
• 3 percent is an earned performance bonus tied to meeting customer and service satisfaction standards, certified preowned sales targets and meeting brand standards.

Lex Kerssemakers, CEO of Volvo Car USA, outlined the new margin structure in an interview at the National Automobile Dealers Association convention here.

"In the past, we had a fixed program to get through the crisis," Kerssemakers said. "We had to roll it back to make everybody survive. We had to be more generous.

"Now we are getting more performance-oriented with a fixed and variable margin."

The new structure went into effect on April 1 with the launch of the redesigned S90 midsize sedan.

He forecast U.S. sales of 80,000-plus vehicles in 2016. Kerssemakers hesitated on a firmer projection because "we are significantly in the plus, but not everybody is." Market pressures won't push Volvo into heavy incentives or other means of pumping up sales, Kerssemakers said.

"We are not going to do strange things," he said. "We have had very clean and balanced sales this year, and I want to keep it like that."

And that means having "healthy stock levels and a very balanced equation" at the end of the year, he said.

Last year Volvo sold 70,047 light vehicles in the U.S., a 24 percent gain from 2014. In the first quarter, sales were up 19 percent to 16,361 vehicles.

Last year Volvo introduced a mandatory new facilities standard called the Volvo Retailer Experience. The target is to have all 296 stores in compliance by late 2018, when the first U.S.-made redesigned S60 compact sedan rolls out of Volvo's new factory in South Carolina, Kerssemakers said. Volvo is paying unspecified support to dealers for the dealership upgrades, he said.

About 80 dealers have stores that are in compliance, another 35 are committed and building. The "the rest are coming," Kerssemakers said.

The new standard is described as cool on the outside and warm on the inside. The exterior is light and airy and has extensive use of glass, wood and windows. There's even a glass window in the sales area that looks into the service bay. The interior and furniture have an open, Scandinavian feel. Volvo executives previously said the average dealership would have to spend $1.2 million to $1.5 million to meet the requirements.

Volvo lost about 15 dealers over the past several years. Other than filling those spots, Volvo has no plans to add dealers in the near future. Instead, it will focus on increasing the throughput of existing retailers, Kerssemakers said.

"They are the same retailers who 12 years ago sold 140,000 units in 2004. They know how to sell cars and they have other brands," he said. "The question is do they see the future in Volvo?"

The answer is apparently yes because dealers are starting to invest in people, training and in facilities, he said.

The redesigned XC90 launched last year "continues to be the halo and the turnaround car for us in the United States," Kerssemakers said.

But marketing will shift away from TV to digital, he said. "We are using it because it is very effective. You can tailor it. You know exactly who you are talking to -- it is razor sharp."

Volvo has announced that it will sell a new compact XC40 crossover in the United States and any other compact 40 models that come off a new platform, he said.

It hasn't been decided what other 40 models will come, but all will be globally developed, he said. "We used to have the S40 and the C30 -- whatever comes will be developed for the U.S."