Volvo finding early success with subscription-based car model

DETROIT. About 15 months ago, Volvo Cars USA launched an innovative program designed to make it easier for people to drive a new car without the long-term commitment of a loan or even a lease. Care by Volvo has been such a big hit so far that the company will be adding new cars to the program and hopes to expand it further, said Anders Gustafsson, senior vice president Americas and president & CEO of Volvo Cars USA.

“We know that when the [car] warranty is over, at three years or five years, the [customer] loyalty goes down,” Gustafsson told the audience during a session at the North American International Auto Show on Monday. “The most important thing is to make sure the customer stays in the Volvo family.”

Care by Volvo is a subscription-based service that gives the customer a new Volvo XC40 for 24 months. The all-in price also includes insurance from Liberty Mutual and all maintenance, including excess wear and tear coverage for items like brake pads and rotors. There is a 15,000-mile a year allowance.

What makes the program unique is that there is no price negotiation and most orders are handled online. Using either the web or mobile app, the customer can build their car, choosing the trim level, color, wheels and interior styling options, and verify the monthly payment option. A simple click of the button reserves the car after paying a $500 deposit that is applied to the first month payment. A Volvo concierge representative contacts the customer to arrange delivery.

The monthly cost varies based on the specific vehicle options, but Volvo said that a 2019 XC40 T5 AWD Momentum with a MSRP of $41,945 would cost $700 per month for 24 months, insurance included.

Once a customer has a car for 12 months, they can choose to opt out and replace it, although that restarts the 24-month clock.

“The first year of profitability is not something that supports my business,” Gustafsson said, “in year two it’s better, and in year three it’s even better.”

Gustafsson said that Volvo now has 60 people working at its call center dedicated to Care by Volvo. After a full year of the program, he noted that 46 percent of customers are under the age of 35; 50 percent ordered through their phone or tablet; and 92 percent are new Volvo customers.

“The whole industry is changing very, very fast,” he said. “It is a lot of rumors, headlines … I learned we [as an industry] are not very fast to adopt to change. We are very slow.”

Subscription-based services are a growing trend in industry, with many leading experts believing that even the use of automobiles and commercial trucks will adopt a subscription-based, shared-services model. Last year, Ryder launched a shared-services type model for customers with trucks sitting idle. COOP by Ryder is a digital asset-sharing platform for commercial vehicles. Using COOP, companies can list equipment they have available for renting and other commercial operators can find equipment to fill short-term needs.

The subscription-based Care by Volvo program is something the company developed and implemented quickly, Gustafsson added, with plans to adjust it as it grows. He said the company has recently decided to add the Volvo S60 model to the available car options and used vehicles will become part of the program in the near future.

“The car sticks out, but it is a new approach and the price tag is very affordable,” he added.

The toughest selling point so far has been with dealers, though. “I have learned a lot about trust and the importance of having the dealers behind you and helping them understand this,” Gustafsson said. “It’s extremely important to have dealers onboard. Some are very skeptical, they think it is a Trojan Horse, a way to go around dealers, which is not the case.”

He said that more dealers are buying into the program, and the customer reaction has been positive, but most importantly, it is introducing Volvo cars to a whole new generation of customers.