California Auto Dealers Ask Volvo to End Subscription Service
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]
A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.
More by Matt Posky
Comments
Join the conversation
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.
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.