Volvo Cars of North America CEO Anders Gustafsson is less than a year into the job of transforming the carmaker's continental operations, and he's already learning to pace himself.
"Profitability is not a sprint, it's a marathon," Gustafsson said.
In March the Volvo XC40 crossover hit dealerships, and 2,483 have been sold through April. Volvo has introduced a subscription ownership model the company hopes will lure young buyers fed up with the complicated cost of vehicle ownership and limitations of traditional leasing. The service, called Care by Volvo, costs $600 a month in the U.S. for a 24-month period, and Gustafsson said subscribers have accounted for nearly 10 percent of XC40 sales. Later this year, Care by Volvo will offer the S60 sedan, to be revealed this summer at the opening of Volvo's plant in South Carolina.
But the real work is behind the scenes, where Gustafsson, 49, is working to improve relations with the dealer body.
"The honeymoon is over," said Gustafsson, a Swedish native, who has a second phone specifically for dealer communications. "They know my strengths and weaknesses, and they know to be very upfront and clear."
Gustafsson spoke with Staff Reporter Shiraz Ahmed about attracting new buyers, growing profitability and improving the sales experience.
Q:The XC40 hit dealership lots in March. Have sales matched expectations?
A:It's a tremendous success. If you talk to our partners, we've been too humble. We have ordered not enough cars from the plant. Extremely successful.
How have consumers responded to Care by Volvo, the subscription service tied in with the XC40 launch?
It's a learning curve for all of us. After three months, we delivered our full-year target related to Care by Volvo. We aimed for 10 percent of our yearly sales. Right now, we are getting closer and closer to going over that 10 percent.
What really sticks out is that one-third of our customers have bought or subscribed to the car through the phone. Where I come from that is not so common. I'm super impressed how open customers are to new ideas.
A big focus of your first six months has been building trust with Volvo's dealer partners. Now that you've gotten past introducing new plans and ideas, how do you continue maintaining those lines of communication and trust?
I'm not so naive that I think after a couple meetings everything is fixed. This is a very competitive industry.
Our partners are going through tremendous growth right now. We are between 35 and 40 percent growth every month. My job is to help our retailers make more money. We don't have a growth problem anymore, we have a profitability opportunity in the U.S.
We have tremendous growth, but as the interest goes up in the U.S., the cost to maintain a stock of cars also goes up. We need to do something about this.
That is something I'm working on with a retail advisory board. We also have a profitability forum where we put together a team of owners that is involved with my finance team to talk about real actions to help them make more money.
Are there any points of tension with dealers regarding Volvo's plans in electrification and subscriptions that remain?
I know they understand why we do it. They of course are suspicious, because it's a bold statement to say from our headquarters in Gothenburg that we should aim for 50 percent electrification. But this is a long-term strategy. The 50 percent strategy is a global strategy, and the U.S. is 20 percent of the total of Volvo cars. We will do our job, of course, but we will still have combustion engines still in the future.
Subscription is a brand-new solution. That is absolutely not a concern. They are monitoring the development and they are talking to the customers because they understand this is additional volumes. That was our sales pitch.
Your former owner, Ford Motor Co., recently announced it's discontinuing most of its traditional car lineup in the U.S. How important are crossovers such as the XC40 to generating those promised profits for the company, and what can you do to market the traditional sedan such as the S60 to crossover-crazy consumers?
Totally agree with the crossover statement, that's a very profitable segment. It's profitable based on the car and the demand so you can maintain a good residual value. If you go into the sedan segment, I'm reading all the information from our competitors on their view on the sedan. When we talk about how we launch that car, we'll do it in a Volvo way. We'll use Care by Volvo.
The numbers are going to be available in a couple months. I'm very confident related to the design of the car.
Shifting a brand's image to be more youth-oriented isn't easy; just look at Buick. What's your core message to younger buyers in the U.S. for why they should choose Volvo over, say, Audi?
I really would like to make a statement that the car will decide how we should mirror our view of ourselves. Our customers, in their mind, are far younger than the number on their driver's license. This is just a new way to attract customers who have a specific need, that's the whole setup with our product portfolio. We have the S40, we have S60, we have the car of the year, we have the XC90. We want to get them into our family.
If I give you some numbers, 45 percent of our customers for the XC40 are below 35 years old, and that is normally not our customer average age. The number that the retailers really appreciate is that 90 percent of the customers are new customers into the Volvo family.
You said at the Automotive News World Congress in January that if retailers and the company don't start to see profitability gains, "they need to throw me out." At what point do you think it's fair to give you a performance review?
My wife loves the U.S., so I need to work hard, otherwise she would throw me out. We need long-term growth. Profitability is not a sprint, it's a marathon. Our retailers trust our portfolio so much, 90 percent have signed up to invest in our facility program. That's a very impressive number.
Businesses don't sell cars, the things that sell cars is the people. What I'm concerned about, and the reason I talk so much about profitability, is, first of all, I need to make sure they can pay the facility investment. Number two, if they don't make money, they won't invest in people.