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Ford takes risk going upscale with Volvo

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Ford takes risk going upscale with Volvo

Swedes fear that reinventing brand could hurt it but realize their survival is at stake.

Bryce G. Hoffman / The Detroit News

Ford Motor Co., after abandoning plans to sell Volvo Car Corp., now wants to move the brand more upmarket in a bid to boost sales and profits. But it is a risky strategy that is making Volvo executives in Sweden jittery because it could alienate traditional buyers.

Last month, the day after Ford said it would keep Volvo -- at least for now -- the chief of Ford's European operations flew to Sweden to deliver a tough-love message to the folks in Gothenberg.

Inside the ultramodern Volvohallen, some 300 of Volvo's top managers sat uneasily in blond wooden chairs as Lewis Booth ran through a few slides detailing the company's third-quarter financial results. Once again, Volvo had failed to turn a profit.

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His message was simple and direct: Volvo must become competitive on costs and revenues and it must do it by becoming a legitimate premium alternative to rivals like Lexus, BMW and Mercedes-Benz -- not by reinventing Volvo, but by intensifying its focus on safety, simplicity and Scandinavian design.

"It's not a change of direction, it's just building on what they've got," Booth, chairman of Volvo Cars and president of Ford's European division, told The Detroit News. "We're looking to take customers from everybody. We're not going to achieve it by mimicking our competitors. We're going to achieve it by being what Volvo is -- a strong Swedish brand with the values of that society."

Some executives in Sweden worry that by trying to transform Volvo from a near-premium brand into a full-fledged luxury marque Ford will damage Volvo's pristine image, according to Ford and Volvo sources. But they also know that Volvo could only survive as part of a larger, global car company like Ford. Volvo CEO Frederick Arp declined to be interviewed for this story.

At the same time, there is a growing realization in Dearborn that Ford, poised to sell Jaguar and Land Rover, needs a global luxury brand to truly compete on the world stage.

CEO Alan Mulally pushed to sell Volvo to raise much-needed cash for Ford's North American restructuring and narrow his international management team's focus to fixing Ford itself. But some advisers urged against unloading what is widely seen as one of the most respected brands in the automobile industry today.

Ford has also become increasingly dependent on Volvo's safety technology and engineering prowess, with Volvo platforms now providing the foundation for flagship vehicles like the new Lincoln MKS sedan.

Also, Wall Street analysts say the timing for a sale is bad. Credit is tight and private equity interest in megadeals is ebbing, evident in the trouble Ford has had unloading its British luxury brands. And Ford's new contract with the United Auto Workers has eased financial pressure on the automaker.

Near-premium to premium

Still, Mulally is not making the sort of long-term commitment to keeping Volvo that he has made to Ford's Japanese affiliate, Mazda Motor Corp. He has agreed that keeping Volvo makes sense for the foreseeable future -- but only if Volvo is willing to evolve.

"They were kind of defining themselves as near-premium and they had this great thing about safety," Mulally said in an interview. "But with what they've done -- what we've done with them on the product strategy and their portfolio -- now they are premium."

At a dinner during the Los Angles Auto Show, he added: "They have a premium product. It's really important that we continue to improve their productivity and reduce their cost structure. We can help with that."

Some in Sweden fear that Ford wants to run Volvo from Dearborn, a concern that surfaced when Ford bought Volvo in 1999 and has been a continuing problem.

Ford paid $6.45 billion for the brand and has poured billions more into it since then. Volvo has transformed from a brand known for safe-but-ugly cars into one of the most stylish vehicle manufacturers in the world. Volvos are still among the safest cars on the road, but the boxy, utilitarian designs of the past have been replaced by a distinctive Scandinavian style that puts form on an equal footing with function.

Peter Horbury, the British designer responsible for creating Volvo's new look, says the decision to move it upmarket makes sense. He says Ford has an opportunity with Volvo to create an entirely new type of luxury brand.

'Turning Swedish'

"BMWs and Mercedes are often sold by peer pressure," Horbury said. "Volvo is bought by somebody who is self-confident enough to make their own decision. We can build on that. Volvo can be the luxury brand of the future because, in many ways, the world is turning Swedish."

Care for the family, concern for the environment and a design aesthetic that values simplicity over all else are core characteristics of Swedish culture. These same qualities are becoming increasingly important to consumers all over the world, Horbury said, adding that Volvo already embodies these qualities to varying degrees.

Booth says Volvo has to take these traits to the next level.

"They're very strong on the environment and they're very strong on safety. But a lot of other people are aspiring to be where Volvo is, so we can't just have Volvo relying on its historical strengths," he said. "There's got to be a bit more. A lot of it is in the subtle details."

For Volvo, luxury will be defined by better fit and finish, the use of more premium materials inside the cockpit, more active safety innovations like collision warning and avoidance system that debuted in the new S80 last year and a renewed commitment to green technologies.

Last year, Ford opened a new hybrid engineering center in Gothenburg and charged Volvo with leading the development of hybrid technology for Europe. It also invested $1 billion to improve Volvo's fleet fuel economy and tailpipe emissions. There is some hope that Volvo could become a leader in diesel-electric hybrids.

Plan for profitability

Product experts like Jim Hall of 2953 Analytics in Birmingham say Ford's strategy for Volvo makes sense.

"You can't sell on safety alone anymore," he said. "By using that hook of Scandinavian design, they can do luxury in a way that no one else does. But they have to be Volvo -- very luxurious Volvos, not luxury cars with a Volvo badge."

By pushing Volvo upmarket, Ford hopes to raise the average transaction price on Volvo vehicles and widen its margins to generate more revenue. It also hopes to attract new customers to a brand that has never broken the 500,000-unit-a-year barrier.

At the same time, Ford wants to help Volvo reduce its costs by more closely integrating Volvo's product development and procurement operations with Ford's.

Future Volvos will rely more heavily on components from Ford's global parts bin, but only in areas the customer cannot see or feel. That will allow Volvo to reduce costs by taking advantage of Ford's own economies of scale.

Parts that directly affect the customer experience will be enhanced to make them even more distinctive. Booth said Ford wants to allow the Swedes to put their own stamp on every product.

The challenge in all of this, Booth acknowledges, is to bring new customers to Volvo without alienating its core constituency.

A class by itself

Volvo means different things to customers in different markets. To Swedes, it is family transportation, filling the same niche that the Blue Oval occupies in the United States. For Britons, Volvos are country cars. In this country, where every car makes a statement, a Volvo is seen as a smart, less-luxurious alternative to more expensive German cars.

Whatever their reason for purchasing a Volvo, the brand's customers are intensely loyal -- as are its dealers. But that loyalty was tested by Ford's decision to rethink its ownership of the brand.

"We were extremely concerned about the relationship," said David Stein, who owns two Volvo franchises in Austin, Tex. "We're feeling much better now. We're ready to move forward. Ford's made some commitments and the timing is perfect."

Even the Swedes -- although they may be concerned that Volvo's fate is being decided in Dearborn -- seem relieved, if still jittery, ranking executives said.

"When a company loses money, people should be nervous," Booth said. "We've got to do this very carefully, very sensitively. And it's got to be Volvo."

source:

http://www.detnews.com/apps/pbcs.dll/artic...712030397/1148/

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"BMWs and Mercedes are often sold by peer pressure," Horbury said. "Volvo is bought by somebody who is self-confident enough to make their own decision.

And this is the best reason why Volvo can flourish. At the same time, the cult mentality of BMW and Merc is what keeps their prices up.

I think Volvos are pricey already. i don't think they can push up their prices too much.

The new S80 is nice outside but bland inside.

The new Wagon is nice.

I do think they can resonate in the market with Swedish design. I think folks are getting tired of German and are finally seeing through that any Asian luxury is faux, shallow, and lacks style.

Safety, simplicity, comfort. Your time to arrive. Volvo.

Edited by regfootball
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And this is the best reason why Volvo can flourish. At the same time, the cult mentality of BMW and Merc is what keeps their prices up.

I think Volvos are pricey already. i don't think they can push up their prices too much.

The new S80 is nice outside but bland inside.

The new Wagon is nice.

I do think they can resonate in the market with Swedish design. I think folks are getting tired of German and are finally seeing through that any Asian luxury is faux, shallow, and lacks style.

Safety, simplicity, comfort. Your time to arrive. Volvo.

Agreed.

Different will be good in this place....

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And this is the best reason why Volvo can flourish. At the same time, the cult mentality of BMW and Merc is what keeps their prices up.

I think Volvos are pricey already. i don't think they can push up their prices too much.

The new S80 is nice outside but bland inside.

The new Wagon is nice.

I do think they can resonate in the market with Swedish design. I think folks are getting tired of German and are finally seeing through that any Asian luxury is faux, shallow, and lacks style.

Safety, simplicity, comfort. Your time to arrive. Volvo.

Agreed. Volvo was one of my favorite brands at LAIAS, because it was luxury in a stylish and non-stuffy sort of way. The Swedish reps, wood floors, awesome seats, and simple design really make a difference.

Merc and BMW prices are high also because they don't share platforms across brands, and knowing there will be a market, they can engineer to a higher standard without regard to cost. I'm fine with Volvo's current niche position in the US. It might lack the technical sophistication of the first-tier brands (it's FWD, Ford-based, has less power, etc), but the price is lower and the image is cooler. Volvo should consider using some of their more economical powertrains here; there is real potential for practical, high-quality cars that are neither ostentatious or powered by six-million horsepower engines, IMO.

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the S60 was a hugely popular car around here. not so much recently because its old.

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I love Volvo. Great cars. My mom's '05 T5 XC90 AWD has been bulletproof (55k on the odo) *knock on wood*

I also worked at a Volvo dealership this summer. I really do like the cars, but for the prices of some of them (New S80, XC70, XC90) are too pricey for what they offer. S40 is perfect entry luxury vehicle. But they really do need to move upmarket and offer a bit more for the money. They bank on simplicity and elegant design which some people don't want to pay that much for.

Nobody can deny that their seats are first class though.

-Joe

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post 6? welcome, Joe.

Hahah yeah, I'm gettin crazy.

I read this more frequently than I post.

I'm an avid Saturnfans.com-er

(Now I've got 7!!!) :thumbsup:

-Joe

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What about Lincoln?

Exactly what I was thinking ...

Ford still has no idea in hell what they are doing. It's aggravating me to death to watch them f@#k up on a daily basis anymore.

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While it makes sense, I hope they maintain their roots as being safe. That's their main selling point.

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The new S80 looks great... I always liked the shape of the S60, a nice change from the square Volvos of the past...

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Go back to RWD/R-AWD and concentrate on safety & durrability first, luxury second.

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Exactly what I was thinking ...

Ford still has no idea in hell what they are doing. It's aggravating me to death to watch them f@#k up on a daily basis anymore.

Count me in with that sentiment.

They spent billions developing a class-competitive rear-drive platform for the luxury midsize market (Lincoln LS and Jag S-Type), then failed to do much else with it (I don't count the neo-Thunderbird, a distraction at best) and let it wither away - but not before cost-cutting and stripping it of its best features to create the current Mustang. Worse yet, they didn't have the foresight or (apparently) even the inclination to develop a similar version to replace the Paleozoic-era Panther platform, which honestly has to die soon - it's simply way off the mark these days.

So Lincoln, once one of the most prestigious names in the automotive industry, is getting a full lineup of V6-powered might-have-beens and over-chromed trucks for the foreseeable future - while Volvo, which was doing quite well for itself in its normal "sensible-European" vibe, is now going to go upmarket, while Ford hands over much of its best engineering work to the highest bidder. Meanwhile, Cadillac is becoming something close to the Standard of the World it always advertised, and Chrysler is free to re-energize itself in the luxury market now that they're free of Daimler's restrictions.

Nice work, fellas. Edsel and Henry II have probably reached jet-turbine levels of spin in their coffins by now.

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