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]