Volvo leaves U.S. dealers confused on plans

Volvo's ambitious plan to pivot to a digital-only sales model could stall in the U.S. as some retailers balk at what they see as a factory assault on the franchised dealer model.

The Swedish automaker this month announced plans to become an all-electric brand globally by 2030. To sell those vehicles, Volvo wants to use an online-only, factory-set price sales model — borrowing aspects of a strategy pioneered by Tesla that has become a template for a wave of electric upstarts.

But dealer associations in two states — Virginia and California — have sent letters to Volvo warning it that the strategy might violate the automaker's dealer agreements or state laws meant to prevent automakers from competing with their franchises. The Texas dealer association is now seeking clarification from Volvo on the plan.

"Volvo's proposed scheme violates its retailer agreement with dealers," the Virginia Automobile Dealers Association said in a March 22 letter to Volvo Car USA CEO Anders Gustafsson. "The Volvo retailer agreement ... does not contemplate anything like the scheme attributed to Volvo officials where vehicles are sold online by the U.S. distributor at a price set by the distributor."

Gustafsson is preparing to meet with U.S. dealers during a six-city roadshow in April. He told Automotive News last week that retailers are "nervous about uncertainty."

"It's very clear that [there are] some misunderstandings out there," Gustafsson said. "I have still a tough time to understand why everyone is so suspicious. We are trying to develop this brand faster than our competitors."

To achieve that, Volvo has not been afraid to experiment with innovative business models, sometimes doing so without first securing the buy-in of its retailers. Last year, Volvo was forced to suspend a vehicle subscription program in California following dealer agitation there.

The best dealer-manufacturer relationships are built on partnerships, said Adam Simms, co-owner of Price Simms Auto Group, which operates two Volvo stores in the Bay Area.

"Any development to improve the customer experience that involves the OEM should be an iterative process between the dealer and the factory," Simms said.

Volvo's vision of digital-only retail has dealers concerned about their role. Some view it as a threat to a fundamental tenet of the franchised dealer system — that the retailer is the guardian of the consumer experience.

"Who owns the customer relationship from beginning to end?" Volvo Retail Advisory Board Chairman Ernie Norcross asked. "Dealers want clarity that Volvo's model doesn't violate franchise rules."

Gustafsson reiterated that dealers will continue to sell EVs and maintain customer relationships under the new sales model. The online-ordering component is "only a tool," he said, noting that customers are free to visit a brick-and-mortar dealership to research, test drive and order vehicles, as they do today.

"As much as we work together today, we will work in the future," he said. "But we need to do it faster, and we need to integrate our systems so we can sell cars faster with less selling cost."

Even so, public comments from Volvo's top executives in Sweden have put some of the brand's 282 U.S. dealers on edge. They worry that under the new model, retailers will be relegated to becoming delivery and service agents.

"The sales competence would move a bit away from knowing a lot about financing and different lease models because that will be done — preset — on the Web page," Volvo Cars global boss Hakan Samuelsson said this month. "But knowing the car, explaining all the features in the car — that will be a very important role" for dealers.

Norcross, owner of Volvo Cars Memphis in Tennessee, said there are conflicting messages. The implication from Sweden is that dealerships will become distribution and service centers, the dealer said. But the message from Gustafsson at the U.S. unit has been that "we are retail partners — you will control the consumer, and you will handle the sales process," Norcross added.

Gustafsson says Samuelsson's comments were directed to a wider audience.

"We are a global company, and my boss needs to communicate to the whole world," he said. "It's my job to explain how it's going to work in my regions."

Figuring out how to execute the EV retail model in the U.S. without running afoul of dealer franchise laws is Gustafsson's challenge.

"It's difficult for Anders to articulate the global direction to the U.S. dealer network," Norcross said. "It will be tricky to adapt Sweden's strategy to the restraints and restrictions of the U.S. market."

Since the March 2 global announcement of the EV retail plan, Gustafsson has attempted to clarify its U.S. implementation and calm dealer nerves.

"The dealer will always execute the transaction because this is your business," the executive said in a video message to dealers obtained by Automotive News.

"The global event focused on our global strategies, which require local actions based on culture and market characteristics," Gustafsson said in a memo emailed to retailers. "While we have yet to determine all details for our U.S. implementation ... I am confident that we will navigate these changes in the same way we have successfully done with other transformations."

But even as Gustafsson attempts to sell the plan to the U.S. retail network, he's drawing fire from dealer groups that view the proposal as a Trojan horse that could fundamentally alter the franchised dealer model. If Volvo successfully pivots to digital-only retail, other brands could follow.

California New Car Dealers Association President Brian Maas said the group is putting Volvo "on notice."

"It is the competition issue that is the crux of the problem," Maas said. "We are not opposed to alternative sales channels as long as Volvo complies with applicable state laws."

The California trade group, which represents about 20 Volvo dealers, noted in its letter to the automaker that the proposed retail model could violate the state's franchise laws.

"Volvo dealer members have invested millions of dollars in facilities and personnel with a justifiable understanding that they would be partnering with Volvo as a dealer, not a mere delivery agent," the letter said.

The Virginia dealer association said in its letter that media reports indicate Volvo's intention to eliminate customer negotiations with dealers and price competition for new vehicles.

"Having depended upon those dealers to build their brand, Volvo has now decided their dealers are expendable," the letter said. "Virginia franchise laws prevent such inequitable treatment of dealers."

While Volvo will offer a factory-set price online, retailers are free to negotiate with customers, Gustafsson said. "Dealers can do what they want to do," he said, "but we would like to be very, very competitive, and we want the family to stick together."