Friday, August 15, 2008

Volvo Considers More Platform Sharing, Move Downmarket

By Chris Haak

08.15.2008


According to Motor Authority, Volvo is considering a near total-reversal of its previously stated goal of reducing volume and shifting the brand upmarket in the face of the strong Euro, surging raw material costs, and an aging lineup (the S60, XC90, and S40 are all several years-old designs). Instead, the report says that the current thinking is to instead move the brand somewhat downmarket, sharing more platforms with Ford, and increasing sales volume.

Such a move is fraught with risk, of course. Ford has spent a lot of energy (and money, of course) toward the goal of keeping Volvo as a contender for consumers' attention in the upmarket brand segment. Moving downmarket quickly would certainly seem to throw all of those efforts out the window.

Such a complete strategic shift, occurring so rapidly, tells me that - like GM's handling of the Saab brand - Ford doesn't have a clue what Volvo does or should stand for, other than safety, of course. The brand tried to grow a sporty branch a few years ago with the R-badged models, but customers accustomed to conservative, boxy 240s just a few years earlier stayed away from the flashy, boxy new models. Then, all of the R models were discontinued, and the brand really seemed to get its design mojo with models such as the S80, S60, S40, and their corresponding wagons. Innovations such as the floating center stack gave a unique Scandinavian character to the cars' interiors (clean, comfortable, and functional - just like an Ikea!), but beyond that - not much. The current S80, Volvo's newest model aside from the XC60 crossover that's just launching, is priced as if it's an Audi or BMW if you check off too many option boxes, but it's simply not in that tier of luxury brands. Volvo occupies a similar segment Saab and Acura, and to a lesser degree Infiniti do.

The results are predictable; Volvo sales are down 19.0% year to date, with all models except for the 30 series, 70 series, and 80 series seeing double-digit declines year to date. The news for Volvo doesn't get any better when looking exclusively at the July numbers; the brand overall was down a staggering 46.3%. The company's car sales (down 47.8%) actually fell faster than its truck sales (down 42.6%), which is completely different from what almost everyone else in the market (save Chrysler) is seeing.

So Volvo decided, in the face of this situation, that it would be best to sell more, but cheaper, cars. Several Volvo models share platforms with non-luxury brands, such as the S40 and C30 sharing a platform with the Mazda3. They certainly are really hurting for volume now, and Ford's divestiture of the rest of the Premier Automotive Group (PAG), Volvo's operational results can no longer be hidden among those of Jaguar, Aston Martin, and Land Rover, and Volvo is definitely losing money this year. Will a move downmarket help or hurt the brand? On one hand, the brand would be damaged more if it went back to Sweden with its tail between its legs because it no longer had sufficient sales volumes to justify its continued US sales presence. On the other hand, selling $20,000 hatchbacks isn't exactly the way to convince people who buy the $50,000 S80 V8s that they're getting good value for their money either.

Volvo's ideal solution would probably be to hold on for the next year or so, and either be sold to a deep-pocketed, patient owner, or to shift as much of its production to the US (at least the vehicles that it intends to sell in the US market) as possible. Since Volvo shares most of its platforms with Ford and Mazda anyway, this shouldn't be the most difficult thing to implement, and the unfavorable exchange rate environment, plus an aging lineup, are really beating up on Volvo this year. Hopefully Ford and Volvo management can figure out how to fix these problems.

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