Ford takes risk going upscale with Volvo


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Ford takes risk going upscale with Volvo

Postby S60R1 » Tue Dec 04, 2007 11:30 pm

Monday, December 3, 2007
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.

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."

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Postby McHakkinen » Wed Dec 05, 2007 12:02 am

lenghty....allow me to condense it.....

...2-9-5-3 `bana

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Postby cody » Wed Dec 05, 2007 10:46 am

nice article... tks bro... especially this phrase (must write down and keep in my empty wallet):

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

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Postby cmsoh » Wed Dec 05, 2007 10:53 am

cody wrote:nice article... tks bro... especially this phrase (must write down and keep in my empty wallet):

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

Thumbs up for this statement man, especially since I nearly gave in to the peer pressure for a 523.
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Postby cody » Wed Dec 05, 2007 10:59 am

cmsoh wrote:Thumbs up for this statement man, especially since I nearly gave in to the peer pressure for a 523.


... the article mentions brand loyalty blah blah blah... so... why did you decide on the Volvo?

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Postby t4sport » Wed Dec 05, 2007 11:47 am

" 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. "

And in SG, it means ah pek. :P

I love it! `bana `bana
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Postby t4sport » Wed Dec 05, 2007 11:50 am

McHakkinen wrote:lenghty....allow me to condense it.....

...2-9-5-3 `bana


wah sei...i'd better go n buy for this weekend's 4D.
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Postby armchaireconomist » Wed Dec 05, 2007 11:54 am

t4sport wrote:" 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. "

And in SG, it means ah pek. :P

I love it! `bana `bana


Me no Ah pek... or I could be in denial... :P

But it's a very good article. It spoke about alienation of traditional Volvo owners if they decide to go upmarket. May very well be true.
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Postby eokh » Wed Dec 05, 2007 11:54 am

my condensed version

Volvo is for those who are too cheap to splurge on a BMW

Ouchhhhhhh !!!! *kenna bang on the head
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Postby JCvolvo » Wed Dec 05, 2007 12:52 pm

Good. very soon we shall see luxury version of volvo like toyat/lexus. i guess since "toyota way" is so popular among the automotive players, they might consider to bring up another luxury brand without spending too much.

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Postby cmsoh » Wed Dec 05, 2007 1:22 pm

cody wrote:
... the article mentions brand loyalty blah blah blah... so... why did you decide on the Volvo?


Interesting qn. Two of my colleagues drive volvos. Of one, his dad is on the 3rd S80 already. My uncle is on his second S60 now (used to drive a BMW). My brother-in-law also drives a S40. I guess after a while, I also got convinced that it was a good buy, and now after really driving one, I'm also quite happy I did.
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Postby cody » Wed Dec 05, 2007 1:29 pm

cmsoh wrote:
Interesting qn. Two of my colleagues drive volvos. Of one, his dad is on the 3rd S80 already. My uncle is on his second S60 now (used to drive a BMW). My brother-in-law also drives a S40. I guess after a while, I also got convinced that it was a good buy, and now after really driving one, I'm also quite happy I did.


hey - that sure sounds like peer pressure to me :P

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Postby HCH » Wed Dec 05, 2007 2:22 pm

"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."

Hey, now I know I am not alone in choosing a Volvo for the reason that it is not a conspicuous brand. ;) They have to be delicate in this operation though. If they get too radical with the design and overboard with the marketing, I'll be one of those to avoid getting a successive Volvo.
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Postby cmsoh » Wed Dec 05, 2007 3:21 pm

cody wrote:
hey - that sure sounds like peer pressure to me :P


Actually, got even more around me that drive the german marques. Volvo is really in the minority.
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Postby volvo940turbo » Wed Dec 05, 2007 9:02 pm

Great news. Volvo moving upmarket. It should distinguish itself as a class of its own. I have been a strong supporter now into a 6th Volvo. (Frankly, I posted earlier that Volvo has lose its prestige over the years, for example, front wheel drive. Perhaps, it was Ford deliberate intention to position Volvo as mid size car when it owns Jaguar. Now with Jaguar out, it is not a surprise to position Volvo as a premium car. Judging from the development of the car industry from the 70s, BMW, a motorcycle company, has successfully transformed itself not only to make car but one of the best in the industry. Volvo was then way ahead of the game in the 70s with its Volvo 122. I have no doubt that it can move upmarket easily with intensive R & D. It has already a well established brand. All it has to do is to establish itself as a well-engineer car which is highly reliable. Failure of Jaguar is that it is a branded car but unreliable).
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Postby scruffy » Wed Dec 05, 2007 10:34 pm

t4sport wrote:" 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. "

And in SG, it means ah pek. :P

I love it! `bana `bana
.... aye who u calling ah pek ..... some of us are ah kongs & liang poh pohs ...... ;)
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Postby scruffy » Wed Dec 05, 2007 10:36 pm

does moving up market mean charging more for their cars ??????? ...... just thinking out loud ;)
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Postby cayman » Thu Dec 06, 2007 1:00 am

scruffy wrote:does moving up market mean charging more for their cars ??????? ...... just thinking out loud ;)


most probably yes... better finishings was mentioned in the report.
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Re: Ford takes risk going upscale with Volvo

Postby Kingkong » Thu Dec 06, 2007 8:58 am

S60R1 wrote: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.
"


From the horses' mouth.

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Re: Ford takes risk going upscale with Volvo

Postby vinS60sg » Thu Dec 06, 2007 4:58 pm

S60R1 wrote:......"Volvo is bought by somebody who is self-confident enough to make their own decision......


this statement holds true for me...so they better NOT make me regret buying my 1st volvo..... (6)

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Postby mistral » Fri Jan 25, 2008 10:06 am

if they want to compete.. they need to broaden their range quite considerably... cannot just rely on 2/3 sedan (with estate variant), 1 coupe and 1 SUV.

and bring back the R!
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Postby Essexboy » Fri Jan 25, 2008 11:00 am

t4sport wrote:" 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. "

And in SG, it means ah pek. :P

I love it! `bana `bana


Mention Volvo owner in the UK and this is the picture which normally comes to mind ;) http://www.btinternet.com/~redeel/960mardonL.jpg

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Postby darknight » Sat Jan 26, 2008 7:25 am

Essexboy wrote:
Mention Volvo owner in the UK and this is the picture which normally comes to mind ;) http://www.btinternet.com/~redeel/960mardonL.jpg



`ba `ba `ba :P
but in spore, its "Sepang trackers" :P
so, its tow tracks. :P


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