By on December 5, 2018

The California New Car Dealers Association is requesting that Volvo immediately end its Care by Volvo subscription service within the state. According to the group, the automaker is in violation of California’s franchise and consumer protection laws.

It’s been a long time coming, as Care by Volvo is clearly designed to minimize dealer interactions. Anders Gustafsson, CEO of Volvo Cars of North America, even said the program claimed as much as 15 percent of the XC40 crossovers intended for dealerships this year.

“It’s really the same concerns from everybody, and it’s just that they don’t feel secure,” Gustafsson of said dealers last month. “They’re afraid we’re going to take something away from them … I would say the biggest question mark around subscriptions is that consumers need to decide that. Our retailers are asking, ‘Please let us be involved, because we can help.'”

It looks like they’re tired of begging. 

According to Automotive News, Mr. Gustafsson received a letter on November 30th from Brian Maas, president of the California association, who accused Volvo of “directly competing” with its dealerships. It also alleges that Volvo illegally modified its franchise agreements and that the variability of pricing vehicles through Care by Volvo may “constitute illegal payment packing.”

Care by Volvo, which launched late in 2017 for only the XC40, is a two-year subscription service via a proprietary app. Access to the vehicle, insurance, and maintenance is included in one monthly payment that ranges from $650 to $850, depending on the chosen vehicle. Subscribers become eligible to swap to a different vehicle after 12 months. While we’ve complained about the ludicrous premium you pay for such services, Volvo’s is actually on the more modest end of the spectrum in terms of overall expense.

“Care by Volvo has proven popular with consumers and has attracted new customers to the Volvo brand,” the company responded in a statement. “Volvo Car USA has always had an open and honest dialogue with its retail partners about Care by Volvo and has recently completed a 12-month anniversary review of the program. An updated version of Care by Volvo (2.0) was recently reviewed with the Volvo Retailer Advisory Board and the feedback was positive and in favor of the changes.”

Maas confirmed that the California New Car Dealers Association has met with Gustafsson and exchanged several letters with Volvo about the program and dealer concerns. However, he also said the automaker unsatisfactorily answered the association’s legal questions.

According to his letter, the dealer group sees the subscription service as a lease where the monthly fee is set, regardless of the actual cost to provide insurance to a customer. Maas said it was unfair to charge a low-risk motorist the same as a customer who is more costly to insure.

“For such a customer, Volvo manipulates the cost of the vehicle to ensure that customer’s monthly payment equals the amount promised by the [Care by Volvo] program,” Maas wrote. “California law expressly prohibits dealers from ‘packing’ the cost of insurance into the monthly lease payment. As such, [Care] exposes Volvo dealers to liability under this (and other) consumer protection statutes.”

Sign-up for Care by Volvo happens online or through the Volvo app and a Volvo concierge coordinates with a local dealer for vehicle delivery. Dealers receive a payment for each Volvo subscription they handle, Maas said.

“In light of the understandable concerns of our Volvo dealer members, we ask that you immediately suspend the [Care by Volvo] program in California and work with your dealer partners to design a subscription program that strengthens your relationship with dealers and complies with California law,” Maas wrote in the letter.

Essentially, stores want Volvo to redesign the program to work more closely with dealers. These kinds of subscription models essentially squash the ability for dealer markups while allowing factories to make some side cash via a more direct relationship with the customer. That results in dealerships becoming little more than pickup and drop-off points for subscription vehicles.

[Image: Volvo Cars]

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16 Comments on “California Auto Dealers Ask Volvo to End Subscription Service...”

  • avatar

    You’d be hard pressed to buy an XC40 at the equivalent trim level and switch it out every year (or even two) for less cost overall than Volvo’s subscription price. It’s still more expensive than a three-year lease, of course, so there’s only a subset of people who will want to do it – but it’s not a huge bill if you compare equivalent alternatives. OTOH, some of the other brands doing this are charging *way* higher markups vs straight up depreciation/ins/maint.

  • avatar

    A quick googling says a $0 down payment 3 year lease on an XC40 is $600/month so $650 including insurance is a deal.

  • avatar
    Kyree S. Williams

    I don’t see anything here about Care by Volvo being worse for consumers, or at least that isn’t their argument.

    The dealers seem upset because:

    a) They are being mostly cut out of the process. Whether that’s in violation of the dealers’ franchise agreements or not is undetermined, but I doubt it, and…

    b) Care by Volvo did soak up a lot of the XC40’s allocation, and it’s a hot car right now. That minimizes the number of transactions on which the dealers can profit by their normal means. Since the XC40 is probably also the car most likely to garner new customers for Volvo, it hit dealers doubly hard.

    Still, that’s not to say that Volvo couldn’t work out an arrangement that involves the dealers more, while still providing the same type of experience to the customer. I just wonder how amenable each party would be.

  • avatar

    Did the association just make a claim of “illegal payment packing”???

    Oh, if I were a CA lawyer, I would seek out the first ten people who can show me enough evidence of payment packing, and go after the entire association and all of its members individually.

    If he wants to open that door, he’d better be prepared for what walks in.

  • avatar

    Tesla have the right approach – cut out the middle man! As a Brit looking on America I’m genuinely surprised that the US seems to be so protectionist. You guys are becoming very socialist these days it seems.

    • 0 avatar
      Frédéric-Alexandre Decelles

      The requirements and cost that dealers have to put up with is tremendous. (The Lincoln door for Ford for example).

      Dealers have a right to protect themselves. It does not mean it’s the proper thing to do for the future.

      But they have protections under the law. It’s a tough business.

      • 0 avatar

        Everyone has a “right to protect themselves.” In civilized countries, consumers as well. By ensuring they can route around deadweight attempting to insert themselves, with the aid of run amuck juntas, between producers and consumer of value.

  • avatar

    If in fact the subscription model is bringing many new customers to Volvo, then the dealers should be pleased. The primary money maker is service, not sales! More Volvos on the road in warranty == more Volvos coming to dealerships for service, any way you slice it. The manufacturer isn’t standing up their own service facilities, are they?

  • avatar

    Who would’ve guessed the dealers are upset they can’t screw customers into putting $3999 down on a lease (never wise to put money down on a lease) and get them at $550/month when they can pay the expensive but not crazy unreasonable amount that Care by Volvo charges.

    I’m just dreaming of the day FCA comes out with a subscribion program called “Octane” or something that put credit rebuilding customers into Journey’s, that would be excellent!

    • 0 avatar

      The manufacturers generally are the ones that set the national ads which always include money down. As a sales person I hate it because consumers come in with crazy expectations about down payments.. not to mention tax, tags, and fees aren’t included in those prices either. Yes, some dealers go even further off the deep end.

  • avatar
    healthy skeptic

    I have nothing against car dealers (or any middleman) per se, but franchise laws need to go. Essentially they force a middleman into the transaction whether anyone wants them there or not. If middlemen exist, it should be because the market wants/needs them there, not because it’s mandated by law.

    >> These kinds of subscription models essentially squash the ability for dealer markups while allowing factories to make some side cash via a more direct relationship with the customer.

    Oh, the horror!

    >> That results in dealerships becoming little more than pickup and drop-off points for subscription vehicles.

    Then maybe dealers should get out of sales, and transition into being franchised repair shops and vehicle prep points. Seems like a more forward-looking model.

    • 0 avatar

      Exactly, well said.

      I think based only on anecdotal evidence that Volvos are particularly popular for business leasing – Corp executives and the company car. I assume Care by Volvo threatens that.

  • avatar

    The subscription program would work better if you could walk onto a lot and pick a car and get a price based on that car. The Care by Volvo requires you to enter into a wait list for the XC40 they don’t have enough of. You wait a year sometimes to get a car to keep for a year. Even under it’s ideal setup you order and wait a few months. That’s counter to the appeal of subscriptions. That just doesn’t make sense. Plus you’re limited on options. To make the program successful they could have you pick a car from inventory and get a subscription on that base on msrp. It wouldn’t always be the same. I think most customers do want the dealership interaction, though they may wish it were a different interaction than they get.

  • avatar

    Does this mean Hyundai’s flat-rate package lease on an Ioniq Electric is illegal too?

    Intersection dept: wasn’t Volvo supposed to bring us an electric XC40 for $40k-ish? If they’re leasing the regular gas version for $650 a month, then either the gas version is hella profitable, or the promised electric version isn’t going to come in anywhere near its promised price.

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