In an article from today’s Wall Street Journal, Swedish car manufacturer Volvo is said to be under the gun by its new Chinese owners to upgrade its image and define its brand. Recently acquired by China’s Zhejiang Geely Holding Group Co, the automaker is searching for “a clear definition of what the brand stands for”. One direction that seems to be endorsed by both its new Chief Executive Stefan Jacoby and Geely Chairman Li Shufu is for Volvo to become a more full-fledged premium brand by adding bigger cars to its product lineup. In fact, new CEO Jacoby was very explicit is his comments: “…we have to up-scale Volvo in the near future to have a solid position in the premium segment. We have to define a Scandinavian version of what luxury means.”
Volvo’s push into the luxury car market actually began ten years earlier with Ford Motor Company’s 1999 purchase of the Swedish carmaker for $6.45 Billion. Prior to the purchase, Volvo had been known more for its high safety standards and reliability, than for anything else. In fact, prior to the strong government safety regulation that began two decades ago, Volvo was the recognized leader for automobile safety engineering – there was no brand that even came close to what Volvo had achieved.
Ford clearly had a different vision for Volvo. They bought the Volvo brand (along with the Jaguar and Aston Martin brands) to compete head-on with the other premium European automakers. Larger upscale models were introduced during Ford’s ownership and Volvo’s safety heritage was de-emphasized as the carmaker raced to compete alongside the lower end of Mercedes and BMW sedans, wagons, and SUV crossovers.
Ten years later, Ford’s grand plan for Volvo and its new luxury brand ended in disaster. Despite pouring significant resources into the Volvo brand, sales never took off, and by 2008, sales volume was down 20% compared to Volvo sales prior to the acquisition. Volvo went from being a profitable independent car company to one that lost $1.5 Billion in 2008. By late 2008, Ford made the decision to cut their losses and sell Volvo. In December 2009, Ford announced that Volvo had been sold to Zhejiang Geely Holding Group Co for $1.8 Billion – an almost 75% loss on their ten-year investment.
So what should Volvo do? If they really want to define their brand, then the first thing needed is to change direction. The strategy of competing directly against the other premium automotive brands is a loser strategy. That strategy cost Ford billions of dollars in losses over a ten year period: I suspect it will show the same poor results for Volvo’s new owners.
Volvo needs go back to their roots of stressing safety and reliability. And by doing this, I don’t mean for Volvo to go ‘retro’ in the sense that they try to recreate their past. What I do mean is for the Volvo brand to be associated with the safest and most reliable cars manufactured in the world today. Volvo needs to once again become the industry leader in safety – the brand that gave us the first car with a safety cage, the first car with front and rear crumple zones, the first to offer safety door-locks, and the first to offer SIPS – Side Impact Protection System. In terms of reliability, there was a classic Volvo advertisement that ran in the 1990s that highlighted a 1966 Volvo P1800 that had been driven over 2.8 million miles, a Guinness World Record for most miles driven by a single owner in a non-commercial vehicle. That’s brand that Volvo needs to become again.
Here’s the takeaway: For the past ten years, Volvo has been pursuing a loser strategy of competing as a luxury brand. To become profitable again, Volvo needs to change direction and become what it once was before – the premium safety and reliability automobile brand.
