Volvo’s subscription-based alternative to vehicle ownership, Care by Volvo, is poised to gain ground in Germany this year after making key changes in 2019.
“If you want, you can return your car after three months, or just do a 30-day trial, without any sort of hassle. That is how much we trust the program.” said Lex Kerssemakers, a longtime top Volvo executive who was named the automaker’s first head of direct consumer business last March.
One of Kerssemakers’ main responsibilities is making the Care by Volvo scheme, which debuted in late 2017, a success after a bumpy start. The idea behind the program is that a person subscribes to a car rather than buys it. There is no down payment to start the subscription, which includes insurance and maintenance.
Along with adjusting downward the subscription length, which started out at one year, Volvo expanded the Care by Volvo portfolio, which debuted with just the XC40 compact SUV, to include the XC90 and XC60 SUVs, V60 station wagon and S60 sedan.
Kerssemakers said the flexibility that was built into Care by Volvo in Germany meant that the program exceeded his expectations last year by topping 2,000 subscriptions. Volvo estimates the subscriptions represent more than 5 percent of the automaker’s total registrations in Germany.
The aim for 2020 is to boost that number to between 10 percent and 15 percent, he told Automotive News Europe.
Along with Germany, Care by Volvo is offering its more flexible offer in the Netherlands. The updated program has just launched in Norway, where Volvo will only offer plug-in hybrids and full-electric cars because vehicles with those powertrains account for half of all new-car sales. The UK, Sweden and two additional European countries will join this year, Volvo said.
Meanwhile, the take rate is below 1 percent in the United States, where Care by Volvo has been considered a threat by dealers.
The California New Car Dealers Association, which represents nearly two dozen Volvo dealers, filed a petition last year with the state's motor vehicle board, arguing that the Care by Volvo subscription program violates state law meant to prohibit manufacturers from competing with their franchisees.
Speaking last week at the J.D. Power Auto Summit Volvo Car USA CEO Anders Gustafsson said he expects a revamped version of the subscription program to be successful because it's more integrated with the dealer network.
The changes in the U.S. also include an expanded lineup and Volvo now allows retailers there to offer vehicles on their lots to subscription customers. Under the original program, subscription customers would have to order the car.
Kerssemakers said that Volvo’s figures show Care by Volvo has the potential to help its car retailers. “The cars we have subscribed in Germany were all done online and very few via the dealer,” he said, “so the likelihood we would have seen them at the dealer is relatively low.”
Kerssemakers emphasized, however, that Volvo still needs its dealers, which will continue to deliver the vehicles to customers and oversee maintenance.
“This is not us against dealers,” he said. “This is to secure that we, Volvo, and our dealers have an answer as the world changes and people buy and own things differently. If we want to avoid becoming a commodity supplier, we need to secure that we keep control our own value chain.”
Kerssemakers said another key piece of information for dealers about Care by Volvo is that so far the scheme has achieved a conquest rate of more than 90 percent.
“That could be because of the newness of the program, but normally when you launch a car you are very happy with a 40 percent to 50 percent conquest rate,” Kerssemakers said. “That tells me there is a need for such a [car-ownership] model. Otherwise we wouldn't have had such a high conquest rate.”
When asked whether Care by Volvo is already profitable Kerssemakers said the scheme is starting to make money in Europe but that is not the case in the United States.
“In one to two years from now, I can tell you whether it works. I'm convinced it will work because it applies to a need that is there in the market,” Kerssemakers said. “How do we know? Because there are a lot of people who do not have a lot of cash, but they have cash flow. They are prepared to spend that cash flow. And a subscription is the most normal thing in the world.”