Volvo Car USA CEO Anders Gustafsson says virus should be catalyst for industry change

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Gustafsson, 51, spoke last month with Staff Reporter Urvaksh Karkaria about the company’s coronavirus response, the sales outlook and the prospects for Volvo’s controversial subscription program. Here are edited excerpts.

Q: How are you managing operations during this period of uncertainty?

A: We took a decision to empower the three regions in the U.S. We spent a lot of time getting everyone on board with the plan, and then it’s up to them to take fast decisions based on their market circumstances.

We are not going to have any big events this year where we’re going to meet each other. We are going to use technology instead. We need to be very cautious with cost.

I’ve been leading companies in tough times. But this is so significant — it’s different compared to other crises that I have handled. You have so many uncertainties about the next wave. Are we going to get some kind of a solution in 12 months? 24 months? 36 months? No one really knows. We have learned to live with uncertainties. The best way to operate is with facts and knowledge.

What effect will the pandemic have on the sales momentum Volvo had coming into the year?

I have been able to run three companies — one before corona, one in the middle of corona and then we have a new normal. That is really what we are focused on now. The two months that we have lost, we have lost. We aim for growth in the upcoming months, year-over-year. Plans that we had pre-corona will be executed from June.

Based on our learnings from China, we can see that the rebound of the sales from a Volvo brand point of view is by far stronger than our competitors. We have one of the best customer portfolios in the industry. They are very loyal and have a good financial situation.

How are you preparing to do business post-pandemic?

The pandemic is putting tremendous pressure on logistics, manufacturing and the culture you need to have when you run a growth-oriented company. We have found a new normal, and that new normal requires us to be extremely cautious. We spend more time on predicting uncertainty.

Instead of waiting for dealers to come up with enterprising solutions, we have provided them with the tools and processes to sell cars with the safety customers are asking for. That includes the no-contact vehicle delivery, wearing of masks and facility cleaning.

Digitization was a priority before the coronavirus. We will implement that faster because we have the same sense of urgency as customers and dealers.

We also have to put stability into production capacity. You don’t want too many cars, and you want the cars at the right time. We get the majority of our production from Europe — close to 90 percent. We need to make sure we get the right amount of cars and the right product portfolio in place in the U.S. before the annual European summer plant shutdown is implemented.

What more can the federal government do to stimulate demand?

Without a strong dealer structure we cannot get back on track. It’s very important that the dealers get the support from the government so they can run their operations and keep their employees. Also, I am very much into some kind of support to speed up the implementation of electrification.

How have Volvo dealers handled the crisis?

I am impressed with their fighting spirit and their willingness to find solutions. In tough times, we need to work together because we are stronger together. Having a strong network is crucial for Volvo Cars.

How do you see the financial fallout from the pandemic affecting R&D?

If we change our product cycle plan, that will reduce our capability to compete.

In the U.S., a high lease market where residuals are extremely important, we need to have a very strong cycle plan. We have no changes to that plan.

Dealer profitability and sales throughput were major dealer concerns going into the crisis. What’s the plan to address those issues post-crisis?

Dealer profitability is my main priority in the U.S. because I have learned that if I have a strong network, a profitable network, they will attract good people. If they attract good people, they will do a good job.

Dealer profitability over the past few years has been getting better and better. Now we have the corona situation, so I am quite sure we are all going to get a financial hit. Profitability is not always about margins, it’s about how we work with our offers and reducing selling costs. It’s also about cutting complexity in the product line by trimming variants and option packages. In the U.S., we have too many variants of cars.

Throughput you can fix with more volume, or you can reduce the amount of stores. We have done both. We have reduced stores, and the volume is by far better than two, three years ago.

Volvo had been making a push to get more U.S. dealers involved with the certified pre-owned program prior to the pandemic. How is that going?

We are the fastest-growing premium manufacturer related to CPO. We can always do a better job. What we aim for is that off-lease cars should stay in the family. We cannot have the 20-80 rule — 20 percent of the dealers accounts for 80 percent of the CPO volume — because then you get a vulnerable system.

What lessons have you learned from the Care by Volvo subscription program?

Subscription is one of our biggest focus areas in the future, especially in the U.S. market, because we think this is what customers are asking for. This is not about taking something from anyone. This is about growing our business.

We need to push our dealers and push the legal system so everyone can see the opportunity for change. We will always listen to our dealers’ feedback. We will always follow the rules and regulations. But, when you implement something that is new, you need to push it a little bit and you need to have a conversation around it and learn.

Care by Volvo has run into opposition from dealers in some states, such as California. What do you say to them?

The subscription program is new and is putting stress into the system. The easiest way to stop development is to say no. No is an answer, but it’s not the solution.

Customers are asking for flexibility; they would like to know their cost; they would like to make sure they get a good deal. Why is that bad?

We will not sell cars direct in the U.S. We need to do that through our dealers. That is the reason we invest in them, and that’s the reason they invest in us.

Dealers are concerned they might be locked out from selling electric models from Volvo affiliate Polestar. Is it a valid concern?

Volvo retailers will have opportunities to sell Polestars in the U.S. But, Polestar will not open up a Volvo retailer to the new brand if the dealer cannot make money out of the Polestar business, or meet other parameters.

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Saurabh Shukla

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