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The redesigned Volvo S80 flagship will reach U.S. dealerships next January.

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Volvo looking to new, redesigned vehicles, engine to help boost brand


AutoWeek | Published 03/26/06, 9:13 pm et

LOS ANGELES -- A combination of an old lineup, fewer engine choices, an unfavorable currency exchange rate and decreased fleet sales has chopped Volvo's U.S. sales by 20 percent in the past six months.

But Anne Belec, CEO of Volvo Cars North America, sees solutions ahead.

Three new or redesigned vehicle lines will go on sale by spring 2007. A new inline-six engine will arrive for the 2007 model year. The dollar has strengthened against the euro and Swedish kroner, making U.S. sales more profitable for the parent company.

"Our future isn't three years from now; it's soon," Belec said in an interview last week.

Belec acknowledged that she arrived at Volvo a year ago just as it was heading for a trough. Volvo had just come off a record 2004, but its product lineup was aging badly. Its one new product -- a V-8 version of the XC90 -- arrived just in time for soaring gasoline prices.

"It was a question of emphasis, if we wanted to hold market share at a loss," the 43-year-old Belec said. "The volume drop was not unexpected. We were not that far off our plan."

Belec came from Ford Motor Co., where she had worked her way up the marketing staff ladder.

From September 2005 through February 2006, Volvo sold 52,582 units, down from 65,787 units in the comparable period the year before.

New products coming

The redesigned C70 retractable hardtop arrives in April. The redesigned S80 flagship will reach U.S. dealerships next January. The new C30 small hatchback arrives in early 2007.

But four volume sellers for Volvo -- the S60 sedan, V70 and XC70 wagons and XC90 SUV -- must soldier on for two or three more years before their redesigns. In 2005, those vehicles accounted for 66.3 percent of Volvo sales.

To help move the iron, Volvo cranked up incentives over the past six months. Volvo spent far more per vehicle in incentives than its premium brand rivals, according to Power Information Network data. Despite the higher incentives, Volvo vehicles took more days to turn than those brands. That shows the weakness of having an older vehicle fleet.

Brian Allan, general manager of Galpin Premier Collection (Volvo-Aston Martin-Jaguar-Lincoln) in Van Nuys, Calif., says Volvo's built-in service base has "kept the lights on until we can get the product in line."

"The near-luxury segment is extremely competitive and fickle, with everyone going for the latest and greatest offering," Allan says.

"In a year from now, we will be in good spirits. The challenge and struggle for Volvo is to get the value message out, without taking away the brand's prestige."

Fewer engines, choices

Volvo also faced problems with powertrain offerings. Rather than certify two of its engines for an abbreviated model year, Volvo allocated its engineers to developing the new-generation 3.2-liter inline-six instead.

That meant the old inline-six vanished from the XC90 and S80. Also, the nonturbocharged inline-five was dropped from the S60. Without the inline-six available in the XC90, consumers were forced to choose either an inline-five or a V-8, at about a $10,000 price gap.

The new 232-hp, 3.2-liter inline-six will find its way into the upcoming S80 and XC90 this fall.

Cracking the kroner

Volvo also was hit hard the past several years by the weak dollar in relation to the euro and the Swedish kroner.

Belec said that the margins on the S40 and V50 "were difficult."

"It has been hard to support them," she said, "but as the exchange rate improves, that gives us more flexibility."

Since September, though, the dollar has strengthened from 7.48 kroner to 7.74 kroner, according to exchange rate specialist Since Volvo Cars North America's budgeted exchange rate for 2005 and 2006 is 7.31, the stronger dollar represents a swing of "millions of dollars" into boosting Volvo's bottom line, a spokesman says.

To increase sales, Volvo wants to offer attractive leases, which account for 35 percent of sales vs. 50 percent two years ago.

In March it started subventing leases on the S40 and V50. For example, the S40's 36-month lease is no money down and $299 a month. Volvo did not say how much subsidy the S40 and V50 leases represent over a standard lease.

However, the cars' residuals are falling, making subvention more expensive. The residual is the value of a vehicle at the end of a lease.

Volvo's 36-month residual values have tumbled, according to Automotive Lease Guide, of Santa Barbara, Calif. After rising from 48.1 percent in March 2004 to 50.5 percent last year, Volvo residuals dropped to 46.2 percent this year. For a well-equipped S40 at $30,000, this year's residuals would represent a $1,290 difference in value at lease end compared with last year's numbers.

The lower residual comes from the S40 and V50 having increased incentives and still not hitting sales targets, says Raj Sundaram, president of Automotive Lease Guide.

Front-loading rentals

Volvo also showed weak January and February sales this year because of decreased rental fleet sales.

Last year, Volvo pushed all fleet deals into the first quarter. Although fleet sales will stay about 7 percent of total sales this year, the deals are spread throughout the year. That represents about 2,100 vehicles that won't show up in Volvo's first-quarter books.

March sales are expected to be flat. Given that rental sales are down sharply, that means retail is on the way up.

Of course, one month does not make a turnaround, Belec acknowledged. But a strong March gives the franchise momentum that Belec hopes will carry throughout the year.

"We have a great future, but we have to manage that future," Belec said. "You can always pick up momentum, but you lose time getting it back. It's hard to be up and down all the time."

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I still say, if you want to get in any accident, you really want to be in a Volvo.
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