Volvo's subscription service copes with its success

DETROIT — While one of its competitors in the fledgling car-subscription market shuttered its service this month due to lack of interest, Volvo executives say its Care by Volvo program has delivered promising results.

On one hand, that early success has put the company in an enviable position as automakers tinker with business models that don't revolve around traditional car ownership. On the other, it has led to unforeseen challenges, namely a backlog of orders and tension with dealers.

"Growth is fun, but it can also complicate things," Anders Gustafsson, CEO of Volvo Cars of North America, said during a visit to Automotive News last week.

XC40 wait list

Launched last November with the company's new XC40 crossover as its signature vehicle, Care by Volvo allows customers to subscribe to a service that bundles car, insurance and maintenance costs into a single payment that's $650 to $850 per month, depending on the vehicle. Customers sign a two-year agreement that lets them swap for a new vehicle after a year.

Within its first four months of operation, Volvo sold the number of subscriptions it had anticipated for its first year of operation, according to a company spokesperson, who declined to discuss specific volume. Consumers signing up now for the XC40 as part of Care by Volvo are on a wait list that stretches into 2019.

Interest in the crossover pinched supply that dealers had otherwise expected would be available for traditional vehicle sales. Earlier this year, Gustafsson said Care by Volvo claimed as much as 15 percent of the available crossovers. Eventually, Volvo instituted a 10 percent cap on the XC40. Gustafsson, meanwhile, spent much of his first year as CEO traveling to assuage the concerns of dealers who wondered where they fit in the plan to create revenue streams outside traditional car sales.

"It's really the same concerns from everybody, and it's just that they don't feel secure," Gustafsson said. "They're afraid we're going to take something away from them. … I would say the biggest question mark around subscriptions is that consumers need to decide that. Our retailers are asking, 'Please let us be involved, because we can help.' "

Even with its challenges, Care by Volvo is a bright spot given the industry's checkered attempts with subscription models. Consider that Cadillac shuttered its Book By Cadillac subscription service this month due to middling interest, perhaps caused by the program's $1,800 monthly price tag.

Success story

"Automotive subscriptions are all over the map today, and everyone is trying different variations of the same theme," said Sam Abuelsamid, senior transportation analyst with research firm Navigant.

Abuelsamid said a program such as Volvo's may be more suited to initial success because customers can only swap vehicles once a year. That's more restrictive than other programs but minimizes costs for the automaker and customers alike.

Gustafsson said he intends to get dealers more involved. Figuring out how to ensure vehicles are quickly resubscribed or made available for sale once they're returned remains a part of the ongoing refinement of the service. So does incorporating the fact many customers are coming to Care by Volvo through their smartphones. A second version of the app will launch soon when the S60 is added to the vehicle choices.