California regulators have launched a probe of Volvo’s pioneering subscription sales program, Care by Volvo, following dealer allegations that the flat-price service violates state franchise and consumer protection laws.
If the California Department of Motor Vehicles agrees, it could result in significant fines for the Swedish automaker, or worse. The state’s dealer association has already asked Volvo to halt the program entirely.
Launched two years ago, Care by Volvo was one of the first of the new subscription services automakers including Cadillac, Mercedes-Benz and Porsche have launched. The Swedish brand’s approach allows customers to order two different model lines, the S60 and XC40, paying a flat monthly fee that includes not only the vehicle itself but insurance, maintenance and other fees. “Everything but the gasoline,” according to spokesman Jim Nichols.
Subscription programs – some of which allow a customer to swap between different vehicles as the need arises – have generated significant interest at a time when the traditional automotive retail model has come under question. But there has also been strong opposition from some quarters, especially dealers who are worried about how retail alternatives could weaken their position.
“This is just the first step in ensuring that manufacturers, specifically Volvo, stop going around their franchisee business partners in an attempt to retail vehicles directly. Franchise laws exist to protect dealers from this type of behavior,” said Brian Maas, president of the dealers association in a statement following word of the new probe.
“Our dealer members support innovation,” Maas added, “including subscription-based models, but we are against violating the law. There is a right way and a wrong way to do business in California, Care by Volvo is the wrong way.”
The two-year program currently generates modest sales numbers for the automaker, though it does attract a significant number of first-time Volvo buyers, according to the company. It operates in 49 U.S. states, New York being the exception. Losing California would become a significant blow to Care by Volvo. Its future could depend upon what the Department of Motor Vehicles’ probe determines.
The investigation was triggered by steps the dealer association has taken, including a petition filed with state regulators last January, as well as a hearing by the New Motor Vehicle Board earlier this month. Among the things that dealers contest is so-called “payment packing.” That goes to the heart of the one-price, all-inclusive model of Care by Volvo, however.
For its part, Volvo issued a statement defending the Care program.
“Volvo Car USA is committed to developing Care by Volvo in collaboration with our retailers to offer the flexibility of subscription side-by-side with traditional lease and financing,” it said in a statement. “We continue to improve the program, which will soon enable retailers to complete subscription purchases and provide instant vehicle delivery. Volvo Car USA believes the addition of a s
ubscription option on the sales floor will benefit both customers and retailers.”
Currently, Volvo delivers vehicles from central depots on the East and West Coasts, one of the details it is expected to change.
The DMV, which was asked by the New Motor Vehicle Board to begin its probe, has 180 days to issue its findings.
It is unclear how the probe might impact any of the other subscription services.