U.S.:Hot XC90 sales help bolster Volvo's Sun Belt expansion
By MARK RECHTIN | Automotive News
LOS ANGELES -- Once a niche brand aimed at middle-class Caucasians in northern climes, Volvo is seeking new customers on new turf.
Volvo Cars of North America Inc. is selling more vehicles in the Sun Belt and Rocky Mountain states.
It also is aiming more advertising at minority consumers.
So far the new strategy is working, but Volvo executives are far from declaring victory.
U.S. sales are up 23.5 percent through July, thanks to Volvo's hot-selling XC90 sport wagon.
"We are getting our geographic imbalance right," says Vic Doolan, president of Volvo Cars of North America. "I'd like to think of it as the end of the beginning."
The XC90's successful debut last November helped Volvo expand in the Sun Belt and other previously small markets.
Through July, Volvo brand sales in California and Florida have jumped about 35 percent, and sales in Texas, Chicago and Denver are up more than 40 percent.
Meanwhile, Volvo's traditional markets in the Northeast and along the Eastern Seaboard are running better than ever. In nearly every state, Volvo's market share is up, one executive says.
To be sure, Volvo is not going to catch European rivals BMW and Mercedes-Benz on the strength of the XC90. In 1992, Volvo outsold both those automakers in the United States. Each of the German luxury car makers now sells almost twice as many units as Volvo.
To gain market share, Volvo has concentrated its marketing in its top 20 U.S. markets, including Miami and Houston. Those 20 markets account for 70 percent of Volvo's sales, says John Maloney, Volvo Cars vice president of marketing communications.
Volvo also gave its dealers more control over regional advertising. "We don't shoot different S60 commercials for the South and for the North," Maloney says. "But one ad might be more relevant for one market than another. We give the dealers a palette of creative, and they self-select what they want."
Volvo's breakout brings to mind another automaker that tried to go beyond its roots: Subaru.
The Japanese automaker always had enjoyed strong sales in the Snow Belt. In the 1990s, it tried to expand its presence in the Sun Belt with a marketing campaign that emphasized the superior handling of all-wheel-drive vehicles. It was a tough pitch in warm climates, and Subaru still is primarily a Snow Belt brand.
Volvo's product lineup is more flexible. Unlike Subaru, it offers a choice of front- or all-wheel drive. Moreover, Volvo's advertising message no longer focuses exclusively on safety. So in temperate states Volvo can emphasize styling or performance instead of awd, Maloney says.
The Swedish automaker's Sun Belt strategy got a boost in January when the Texas Auto Writers Association named the XC90 the Truck of Texas. In fact, Volvo is gaining traction in Houston, where one dealership reports that Volvo is winning head-to-head comparisons with Mercedes.
Star Motor Cars of Houston sells Volvo and Mercedes-Benz vehicles. According to sales manager Charles Slement, the XC90 is doing so well that cross-shoppers pick the Mercedes M-Class only when they don't want to be put on Volvo's waiting list.
"The product is way ahead of where it used to be," Slement says. "We have people moving to Texas from all over the country," bringing their Volvos with them and winning converts among neighbors.
Through July, Volvo sold 19,129 XC90 sport wagons nationwide. Due in part to healthy U.S. sales, Volvo is expanding production at the vehicle's assembly plant in Sweden.
But while the XC90 is winning converts, the rest of Volvo's product lineup is struggling. Nationwide, Volvo car sales through July are down 6.4 percent.
Doolan says he is not too worried about Volvo's mixed results; he says he is spending less on incentives. But Doolan doesn't hesitate to use incentives when necessary.
For example, Volvo now offers a $4,000 dealer rebate on its 2004 entry-level models, the 40-series sedan and wagon.
The automaker also offers 2.9 percent financing on other 2004-model cars.
"Vic is quick to respond," says Jim Speck, the Volvo dealer council chairman who oversees seven brands at his Southern California dealership chain. "He knows we'd have to be naive to maintain the same price point if GM comes out with bigger incentives. VW didn't respond, and paid dearly."
Volvo dealers also have been encouraged by increasing numbers of minority consumers visiting their showrooms.
They attribute the trend to new marketing campaigns aimed at particular minority groups. Ten percent of Volvo's total U.S. ad budget is allotted for minority campaigns.
Volvo has launched Asian-specific advertising in San Francisco, as well as Hispanic advertising in Miami. It also has reached out to the gay community for the first time this year, Maloney said.
Volvo gets an additional boost by using minority actors in some mainstream ad spots, he says.
This attention to minorities seems to be having results. According to a recent market survey, the percentage of minority luxury-car buyers who would "definitely consider" buying a Volvo was outpaced only by BMW, Lexus and Mercedes-Benz.
Volvo commissioned Strategic Vision of Vista, Calif., to perform the market study.
A higher percentage of minority respondents gave Volvo a "definitely consider" rating than Caucasian buyers did. That suggests that Volvo can increase its minority penetration, which has been low.
But in Southern California, Speck cautions, Volvo still has trouble appealing to Asians. Affluent Asians prefer top-tier luxury brands such as Mercedes, **** and Waterford, Speck asserts. Volvo is not yet in that league.
And Volvo's premium prices have scared off value-conscious Asians who prefer Toyota and Honda. Speck hopes to lure that group back when the new 40 series debuts next year.
Volvo's inroads into new regions and ethnic groups represent a marketing opportunity, says Dan Gorrell, a partner with Strategic Vision.
"For some time, brands like Volvo, Subaru and Audi have been regional powerhouses but lacking in other areas," Gorrell says.
"It may be due to consumer aspirations; it may be the factory distribution strategy; it may be pricing, or it may be the product lineup. But Volvo can target these new markets."
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My next Ford.....