What are the top issues on the dealer board's agenda in 2020?
Dealer profitability and sales throughput are top issues. Our percent of net-to-sales is not where it needs to be, but it is improving across the dealer network. It's not just about selling the car; it's also about taking it to the bottom line. You want to make sure you're controlling the expenses.
Protecting below-the-line margins is imperative. All manufacturers look at ways to cut their expenses, and one of them is the margin that we handle. As an industry, with new cars everyone is racing to the bottom, so we try to protect that to where dealers feel secure margins are not being changed unreasonably.
How is dealership profitability for Volvo's retail network?
2019 was an up year for the dealer network. We are not where we want to be, but we are heading in the right direction. Volvo's executive management team is committed to working with dealers in this area.
What are some near-term threats to dealer profitability?
Most of the Volvo network has adopted the newest-generation VRE (Volvo Retail Environment) or VNF (Volvo Next Face) facility, so they have added considerable overhead to the balance sheets.
On the variable side, the lead-generation platforms all start at a "discount" that some could consider distressed pricing. Floorplan expense is on the rise. Margin compression in the new-car department is always a factor. We've started a dealer profitability forum that includes a dealer-driven discussion about savings across the network and new revenue-generation opportunities such as F&I products with Volvo Car Financial Services.
What steps do dealers support in 2020 to help increase store profitability?
In a joint effort between dealers and the manufacturer, Volvo initiated a profit forum that is focused on low-hanging fruit to generate profit. They have found some sizable dollar amounts in expense control for the entire network using an initiative called Strategic Source, which assesses a dealership's recurring expenses and advises if savings can be negotiated. Dealers saved on uniforms, office supplies, cell services, etc.
Have affordability concerns on the new-car side affected performance in the F&I office?
We are always concerned about transaction price. When you compress margin on the sale of the vehicle, it puts pressure on the F&I department. You have to make sure you've got a competitive offer in the financing rate and make sure you're selling products that are needed by the consumer. That is why Volvo and Volvo Car Financial Services are looking for unconventional F&I solutions, such as the subscription program.
What are the major headwinds for dealers this year?
The industry is shifting. There are a lot of companies looking to disrupt our business model. We will need to focus on cost control in areas like inventory, floorplan cost and in reducing model complexity.
As we move to plug-in hybrids and battery-electric vehicles, the dealer network has to invest in expensive infrastructure upgrades.
Volvo sales rose 10.1 percent last year. What would you attribute that to?
Product and people. As a brand, Volvo has a tremendous amount of consumer good will, combined with the award-winning product and strong retail offers.
At our Volvo retailer conference, we are going to see three or four new products that are coming down the line.
The network is focused on aligning the consumer experience with the fantastic product. Volvo also has one of the best CPO plans available in the luxury segment. We have a lot of room to grow this year.
Lease maturities are expected to grow 30 percent in 2020. How will you maintain CPO growth?
We have a big lease portfolio coming back in 2020. We are going to have to be aggressive in how we handle that. We'd like to keep all those cars in the Volvo dealer network. Volvo is trying to make the program simpler on the dealer-acquisition side and is putting incentives on the finance side. We are seeing a lot dealers getting into the CPO business that had never been in it.
Volvo dealers have expressed concern about how the Polestar and Lynk & CO brands will be retailed in the U.S. and are concerned they might be locked out from selling the new models. Is it a valid concern?
The dealer network has taken the stance that all things Volvo should go through the Volvo North American dealer network. Dealers have invested heavily in supporting Volvo. The dealer board is of the opinion that the current Volvo dealer network represents the best opportunity for Polestar and Lynk & CO to succeed.
What were your big-selling models in the past few months and why did they do well?
The XC90 and XC60 crossovers are a great value and offer a premium feel that is distinctly different from our competition.
What's missing in the lineup?
There is demand for a larger SUV. The consumer is asking for a Chevy Tahoe- or Yukon-sized vehicle. We'd like to see it have captain chairs in the second row, which has been very successful for us in the XC90 crossover.
We would also like to have a convertible or coupe — a halo-type vehicle for the brand.
Are U.S. consumers ready for electric vehicles, or are automakers pushing them to meet emissions targets in China and Europe?
Electric vehicles are not the only answer, but they are the quickest route to CAFE compliance and progress toward sustainability.
Electric vehicles are not going away and Volvo is committed to shifting to an all-electric lineup in some form, with battery-electric, plug-in hybrid and mild-hybrid models in the lineup. We will have internal-combustion engines in some models, but all ICE models will either be plug-in hybrid or mild hybrid.
What are Volvo dealers doing to prepare to sell and service EVs?
Electrification and in-store requirements are a main focus for the dealer board. We are currently in the process of evaluating each dealer's facility to gauge the needed investment in infrastructure. Our goal this year is to get every dealer assessed.
The conversation with headquarters now is what does the volume for battery-electric vehicles in the U.S. look like for the network? Then, we'll have the conversation about the financial responsibility between manufacturer and dealer network.
Are production and inventory levels in line with demand? Are incentive levels appropriate to manage that?
With the first year of production at our Charleston, S.C., plant under our belt, we feel we are moving in the right direction. But, we are not where we want to be, and this is costly for everyone. If the inventory level spikes, Volvo has to react with incentive spends. As a brand we did a better job in 2019 of not getting on that roller coaster.
What is Volvo doing to direct dealers on the digital retailing front, particularly with regard to omnichannel capabilities?
Volvo and the dealer network understand the consumer is evolving in their expectations on the buying experience across all channels. While there is no requirement to have a digital retail footprint, dealers are strongly encouraged to investigate being able to sell across all channels.
The dealer board and Volvo's management team will focus our first 2020 meeting on discussing the digital expectations of the consumer, and how can we evolve with it.
A lot has happened in the last year with Volvo's subscription service, Care by Volvo, including a program revamp last summer. Has Volvo addressed dealer concerns with the original program?
We voiced our concern about the program because we seemed to be at the end and not at the beginning of the process.
Volvo realized real quick the subscription program was not going to succeed without the support of the dealer network. Volvo worked with the dealer board to make the program a win-win for both parties.