Ford takes risk going upscale with Volvo

[nadepalma]

Ford takes risk going upscale with Volvo

Monday, December 3, 2007
Ford takes risk going upscale with Volvo
Swedes fear that reinventing brand could hurt it but realize their survival is at stake.
Bryce G. Hoffman / The Detroit News

Ford Motor Co., after abandoning plans to sell Volvo Car Corp., now wants to move the brand more upmarket in a bid to boost sales and profits. But it is a risky strategy that is making Volvo executives in Sweden jittery because it could alienate traditional buyers.

Last month, the day after Ford said it would keep Volvo -- at least for now -- the chief of Ford's European operations flew to Sweden to deliver a tough-love message to the folks in Gothenberg.

Inside the ultramodern Volvohallen, some 300 of Volvo's top managers sat uneasily in blond wooden chairs as Lewis Booth ran through a few slides detailing the company's third-quarter financial results. Once again, Volvo had failed to turn a profit.

His message was simple and direct: Volvo must become competitive on costs and revenues and it must do it by becoming a legitimate premium alternative to rivals like Lexus, BMW and Mercedes-Benz -- not by reinventing Volvo, but by intensifying its focus on safety, simplicity and Scandinavian design.

"It's not a change of direction, it's just building on what they've got," Booth, chairman of Volvo Cars and president of Ford's European division, told The Detroit News. "We're looking to take customers from everybody. We're not going to achieve it by mimicking our competitors. We're going to achieve it by being what Volvo is -- a strong Swedish brand with the values of that society."

Some executives in Sweden worry that by trying to transform Volvo from a near-premium brand into a full-fledged luxury marque Ford will damage Volvo's pristine image, according to Ford and Volvo sources. But they also know that Volvo could only survive as part of a larger, global car company like Ford. Volvo CEO Frederick Arp declined to be interviewed for this story.

At the same time, there is a growing realization in Dearborn that Ford, poised to sell Jaguar and Land Rover, needs a global luxury brand to truly compete on the world stage.

CEO Alan Mulally pushed to sell Volvo to raise much-needed cash for Ford's North American restructuring and narrow his international management team's focus to fixing Ford itself. But some advisers urged against unloading what is widely seen as one of the most respected brands in the automobile industry today.

Ford has also become increasingly dependent on Volvo's safety technology and engineering prowess, with Volvo platforms now providing the foundation for flagship vehicles like the new Lincoln MKS sedan.

Also, Wall Street analysts say the timing for a sale is bad. Credit is tight and private equity interest in megadeals is ebbing, evident in the trouble Ford has had unloading its British luxury brands. And Ford's new contract with the United Auto Workers has eased financial pressure on the automaker.

Near-premium to premium
Still, Mulally is not making the sort of long-term commitment to keeping Volvo that he has made to Ford's Japanese affiliate, Mazda Motor Corp. He has agreed that keeping Volvo makes sense for the foreseeable future -- but only if Volvo is willing to evolve.

"They were kind of defining themselves as near-premium and they had this great thing about safety," Mulally said in an interview. "But with what they've done -- what we've done with them on the product strategy and their portfolio -- now they are premium."

At a dinner during the Los Angles Auto Show, he added: "They have a premium product. It's really important that we continue to improve their productivity and reduce their cost structure. We can help with that."

Some in Sweden fear that Ford wants to run Volvo from Dearborn, a concern that surfaced when Ford bought Volvo in 1999 and has been a continuing problem.

Ford paid $6.45 billion for the brand and has poured billions more into it since then. Volvo has transformed from a brand known for safe-but-ugly cars into one of the most stylish vehicle manufacturers in the world. Volvos are still among the safest cars on the road, but the boxy, utilitarian designs of the past have been replaced by a distinctive Scandinavian style that puts form on an equal footing with function.

Peter Horbury, the British designer responsible for creating Volvo's new look, says the decision to move it upmarket makes sense. He says Ford has an opportunity with Volvo to create an entirely new type of luxury brand.

'Turning Swedish'
"BMWs and Mercedes are often sold by peer pressure," Horbury said. "Volvo is bought by somebody who is self-confident enough to make their own decision. We can build on that. Volvo can be the luxury brand of the future because, in many ways, the world is turning Swedish."

Care for the family, concern for the environment and a design aesthetic that values simplicity over all else are core characteristics of Swedish culture. These same qualities are becoming increasingly important to consumers all over the world, Horbury said, adding that Volvo already embodies these qualities to varying degrees.

Booth says Volvo has to take these traits to the next level.

"They're very strong on the environment and they're very strong on safety. But a lot of other people are aspiring to be where Volvo is, so we can't just have Volvo relying on its historical strengths," he said. "There's got to be a bit more. A lot of it is in the subtle details."

For Volvo, luxury will be defined by better fit and finish, the use of more premium materials inside the cockpit, more active safety innovations like collision warning and avoidance system that debuted in the new S80 last year and a renewed commitment to green technologies.

Last year, Ford opened a new hybrid engineering center in Gothenburg and charged Volvo with leading the development of hybrid technology for Europe. It also invested $1 billion to improve Volvo's fleet fuel economy and tailpipe emissions. There is some hope that Volvo could become a leader in diesel-electric hybrids.

Plan for profitability
Product experts like Jim Hall of 2953 Analytics in Birmingham say Ford's strategy for Volvo makes sense.

"You can't sell on safety alone anymore," he said. "By using that hook of Scandinavian design, they can do luxury in a way that no one else does. But they have to be Volvo -- very luxurious Volvos, not luxury cars with a Volvo badge."

By pushing Volvo upmarket, Ford hopes to raise the average transaction price on Volvo vehicles and widen its margins to generate more revenue. It also hopes to attract new customers to a brand that has never broken the 500,000-unit-a-year barrier.

At the same time, Ford wants to help Volvo reduce its costs by more closely integrating Volvo's product development and procurement operations with Ford's.

Future Volvos will rely more heavily on components from Ford's global parts bin, but only in areas the customer cannot see or feel. That will allow Volvo to reduce costs by taking advantage of Ford's own economies of scale.

Parts that directly affect the customer experience will be enhanced to make them even more distinctive. Booth said Ford wants to allow the Swedes to put their own stamp on every product.

The challenge in all of this, Booth acknowledges, is to bring new customers to Volvo without alienating its core constituency.

A class by itself
Volvo means different things to customers in different markets. To Swedes, it is family transportation, filling the same niche that the Blue Oval occupies in the United States. For Britons, Volvos are country cars. In this country, where every car makes a statement, a Volvo is seen as a smart, less-luxurious alternative to more expensive German cars.

MORE HERE

[nadepalma]

Is it me or does this contradict and earlier story that said that Ford wasn't going to push Volvo upmarket to take the place of the Brit-brands they are going to unload soon?

I could have sworn we read that bit earlier?

Regardless, they have a delicate tight-rope to walk. Volvo has a definite "image". If they go and mess it up completely they will end up harming the brand. I'm all for them pushing the brand more upscale, but this will also mean they will have to abandon FWD at some point or have a mix of cars that have RWD for the upper-end of the business and FWD/AWD at the bottom.

But remember, they typically sell around 500K cars a year....if they mess up, it could be an expensive lesson for them.

To me it's almost a bit ironic. In a very real way, GM has been trying to turn Saab into a sportier/edgier version of Volvo. Now FoMoCo wants to turn Volvo into a Sweedish version of Benz and BMW. Gonna be interesting to see what they have planned...

[MrMax]

Its unfortunate that they really have no choice in the matter. This is business, and as with any business, if you aren't consistently turning a profit, changes are in order.

Still, I think this can work. Just look at Audi.

[JVal14]

Man this just sounds like a bad idea. The luxury field is so crowded right now (and will be more so since Acura is expected to move up market), and luxury buyers expect so much. Volvo will have to invest a lot in performance, something that they haven't had a lot of experience in. And Ford has an aweful record with luxury brands recently: they had to sell Aston Martin, they're trying to sell Jag and Rover, and Lincoln has been withering until very recently (but still doesn't have much street cred). But this will leave less competition for Saab, so if they feel comfy doing it, have at it Ford.

BTW, they talk up and down about spreading the Swedish philosophy around; isn't the philosophy of Swedish products "value at low cost" (i.e. Ikea, H&M, etc.)?

[rueben44]

Actually I think Volvo should stay right where they are but it is not the disaster that some people like to say. They should keep Jaguar and give them the products they need. Such as the two new models that they are coming out with. If anything Mercury should be moved to a fleet only brand. To be honest they really should not be selling Land Rover either because they could make products for them from Ford platforms and really make a nice profit.

[Chaz_23]

In 5 years from now every friggin' brand will be upscale, coupled with upscale gas prices and only the rich filth will be able to drive. For the rest of us it'll be bicycles. Hello China.

[Caleb02]

maybe this is wishful thinking onmy part put i do like Ford and GM and Chrysler. I do see Fords plans for now to move Volvo upmarket to be a logical move. My reason is simple. Look how i list each of Fords Brans

Ford = Entry Level auto Proced from about 15,000 - 35,000
Mercury = Premium Entry Level cars basicall a step up from ford or kill it
Lincoln = Near Luxary/ and one or 2 models for American Luxary 45,000+
Volvo = Luxary like that 45,000 +
Mazda = Japanese Luxary to take on Lexus and BMW (wishful thinking I know for Mazda)

[1G6]

Originally Posted by Chaz_23

rich filth

commie lol

[ByTheLake]

Had Volvo and Saab not been acquired, would they have survived as independent companies?

I like Volvo's product line, but if it's not making money, something has to change. Perhaps taking Volvo slightly up-market will help improve the margin a bit, but only if buyers in that segment view Volvos as desirable vehicles.

Funny how the auto industry can't seem to let a brand wither and die. Not that Volvo should go away, but it seems that every struggling brand, such as Jaguar, gets purchased and propped-up. What's the point of all this competition if we keep propping up the weaker brands? Let the weak ones die. Natural selection.

[skylark68]

This doesn't make much sense. They should have sold Volvo and retained Jaguar if they want a true luxury brand. Keep Volvo where they are situated but go back to RWD and AWD on certain models. FWD = cheap (perception wise). A true luxury brand can't sell FWD except on lesser models.

[blank disk]

I see no reason why Volvo can't retain a FWD chassis and offer a premium AWD model luxury sedan and CUV. They will need a nice power boost mostly, and then when combined with AWD standard, they are rappin with the big dogs like Audi and Benz and BMW. I am sorry, I still don't think of caddy in the same league as those guys.

[stevecmh]

i dont like it.. i think going upscale will just loose people.. people do not want to pay 60 grand for a volvo

[FoMoCo Fan]

There is no middle of the market anymore. Witness Honda Civics with more techno whiz features than some luxury cars. Smart move for Ford.

[gwwyjjliu]

Originally Posted by blank disk

I see no reason why Volvo can't retain a FWD chassis and offer a premium AWD model luxury sedan and CUV. They will need a nice power boost mostly, and then when combined with AWD standard, they are rappin with the big dogs like Audi and Benz and BMW. I am sorry, I still don't think of caddy in the same league as those guys.

They already have this, it's called the S80 and when equipped with the V8 and AWD, it stickers over $50K. But it's still at its roots a transverse-engined, front heavy midsize car and it rides and handles like one. It's totally outclassed by a BMW 5-series or even Lexus GS.

No, if Ford wants to get serious about taking Volvo upmarket, they need to put their money where their mouth is and invest some serious $$$ on a world-class RWD platform exclusive to Volvo. You're not fooling anybody if you attempt to take on BMW with a Ford 500/Taurus-based car.

[genjy]

Way back then, Volvo competed with Tier 1 guys like MBZ and BMW. That didn't work well.

Volvo should remain to compete with lower-end Audis. This Tier "2.5" is actually working well for Volvo.

If Volvo were to compete with Audi straight on, then it would lose, unfortunately.