Volvo subscription service violates some franchise, consumer laws, Calif. agency finds

Volvo Car USA's vehicle subscription program violates several California franchise and consumer protection laws, according to a six-month investigation by the state's Department of Motor Vehicles.

In a letter dated April 28, the department warned Volvo that future violations might lead to "enforcement actions" but stopped short of taking any punitive steps now.

The California DMV probe escalates a two-year battle between Volvo and its California dealers over the subscription service and questions the future of a key Volvo retail program in the Swedish automaker's largest U.S. market.

Volvo views the subscription program as another channel for dealers to move inventory. Just as with traditional new-vehicle leases and sales, dealers receive a margin on subscription volume.

Care by Volvo, launched in 2017, is a two-year subscription service. The program bundles the use of a vehicle, insurance and maintenance costs into a monthly payment that ranges from $700 to $800, depending on the vehicle. After a year, subscribers can swap for a different vehicle.

Last fall, Volvo expanded the service to include more vehicles and made some dealer-friendly updates. The reboot, referred to as Care By Volvo 2.0, is available in 15 states. California is not one of them.

The California DMV investigation found Volvo violated state law meant to prohibit manufacturers from competing with their franchisees, by offering subscriptions directly through its website. Volvo also failed to properly notify dealers about changes to their franchise agreement related to the subscription program and said Volvo provided inadequate lease disclosures to subscription customers. And the investigation found Volvo provided preferential treatment in allocating subscription vehicles to factory-controlled stores.

As a result of the probe, the DMV Investigations Division issued a warning letter to Volvo Group North America LLC and to Volvo Car USA LLC outlining the Care by Volvo program's noncompliance with California law, the department said in an email to Automotive News late Friday. The warning provides the companies the opportunity to comply with the law.

"Future violations of the law may result in a more severe enforcement action, including administrative, civil or criminal," the statement said.

Volvo, in a statement, said it "respectfully disagrees with the conclusions" reached by DMV. The automaker is "evaluating its options" while waiting for the next step in the process, which is a review of the report by the California New Motor Vehicle Board, scheduled for July 10.

"Volvo will work with the applicable regulatory agencies and retailer partners to ensure a successful program in California," the company said. "Volvo looks forward to continuing the good-faith dialogue and collaboration with Volvo retailers and the applicable agencies to benefit Volvo retailers and California consumers alike."

In January 2019, the California New Car Dealers Association, which represents two dozen Volvo dealers, filed a petition with the state's New Motor Vehicle Board arguing the legality of Care By Volvo. In August, the board directed the DMV to investigate.

"Volvo is deceiving consumers by saying this is a subscription program; it's actually a lease," Brian Maas, president of the state's new-car dealer association, told Automotive News on Friday. "It's an illegal program, the DMV confirmed its an illegal program."

The dealer association wants the subscription program halted in California and for Volvo to be penalized.

"In our view, a warning letter is not sufficient," Maas said. "Volvo needs to cease and desist from operating the program in California. They've been violating California law for two years. They need to be held accountable."

The association has asked Volvo to "immediately suspend" the subscription program in California. It is also urging the California New Motor Vehicle Board to impose disciplinary action, including financial penalties, on Volvo.

Last summer, Volvo Car USA CEO Anders Gustafsson said the subscription program was among the top three priorities for the company.

Care by Volvo is "100 percent prioritized," he said. "This is going to help provide dealers with another tool to make them money."

Last fall, Volvo rebooted the subscription program, expanding the types of eligible vehicles to reach a wider demographic. More than 80 percent of subscription customers are new to the brand, Volvo said.

Volvo also shortened the time it takes dealers to qualify, approve and get subscription customers into vehicles. Retailers can now offer vehicles on their lots to subscription customers. Under the original program, subscription customers would have to order their vehicles.

For Volvo, the subscription program has been a learning experience.

"It has been a bumpy start with a lot of emotions. We have learned and we have listened," Gustafsson said. "The majority of the dealers understand what we are trying to achieve."