Should Ford Sell Volvo? Four Customer Needs To Consider

The most important thing that we can do going forward is to continue to deliver products people really want and value. . .

Source: Alan Mulally, CEO, Ford Motor Company 1Q07 earnings conference call

There were conflicting reports posted throughout yesterday saying Ford (F) may consider selling Volvo (VOLV). Officially, the company has stated that they are not in negotiations with anyone to sell Volvo (although not in negotiation does not mean they are void of considering a sale).

But I am not going to re-hash the "he said/she said" reports because I am not interested in rumor mongering.

Instead, what you need to know is should Ford sell Volvo?

Right off the bat you might think it depends on if you are: (1) an owner (shareholder) in Ford, (2) an employee, (3) a vendor, (4) a dealer, or (5) a buyer of Ford vehicles.

I tend to think that if an organization does what is in the best interest of the end customer (buyer of the vehicle.) All of the other stakeholders are rewarded.

So let us try to think about this question from the perspective of the end customer.

Customer need #1: The need for a clear product offering
Car buyers need a clear product offering. In my mind, major automakers can best deliver this clear offering through a good, better, best strategy. The "good" product being the best value (price) proposition. The "better" being the middle of the road product (and price). And the "best" being the top of the line.

And to help sort out this good/better/best offering, I think it is helpful to the consumer to differentiate these offerings by brand name. So if I buy a Mercury vehicle (for example,) maybe this is the automakers value line. If I buy a Ford, maybe it is the automakers better product line. And if I buy a Lincoln, maybe this is their best product line.

So how does owning Jaguar, Lincoln, and Volvo (which are all supposed to be luxury brands) help the customer understand the "best" Ford product?

Instead, the customer ends up with many "best" products being offered under different brand names.

Customer need #2: A clear value proposition
It gets worse! When I watched Anne Belec (CEO of Volvo) speak a couple years ago at J.D. Powers International Roundtable, I walked away thinking it was the most impressive presentation out of any of the automakers during the day.

The reason I was so impressed, was because she was very clear about the value proposition Volvo delivered to the market; "safety."

Safety is clearly the niche Volvo tries to exploit in the luxury market (and it is incredibly admirable.)

But does this mean all of Ford's other vehicles are unsafe?

Of course not.

However, safety is just part of the entire value proposition being delivered to the market. Ford Motor Company, under Mr. Mulally's leadership, is appropriately trying to become "one Ford." So I don't understand how Volvo maintains its "safety" focus, while also becoming "one Ford?"

Unless, Ford Motor Company as a whole, decides to make its primary value proposition in each of its good/better/best product lines (Ford/Lincoln/Mercury) focused on the idea of being the safety leader you can never have "one Ford."

So let's think about the safety idea for a second. It is important. But there are a number of value propositions automakers try to compete on (performance, style, etc.).

I think a number of European automakers have the niche in being the best in performance (Porsche, Audi, etc.). Japanese automakers have the niche in convenience and quality. Style tends to ebb and flow with genre and simply whatever the flavor of the day is (like fashion).

So maybe Ford Motor Company considers trying to become the safety leader across its good/better/best product line.

But for right now, becoming the safety leader has clearly not been the strategy (for the company as a whole).

So unless Volvo's value proposition becomes congruent (similar) with Ford Motor Company's, it seems like luxury car buyers get a clearer value proposition from Volvo and Ford being separate entities.

Customer need #3: An efficient distribution channel
An efficient distribution channel is actually the one side of the coin that probably favors Volvo staying with Ford. According to the Automotive News Data Center, Volvo sold 27 vehicles per dealership during the month of June (ranking #21 out of 39). Lincoln sold 10 vehicles per dealership (ranking #32).

If Ford Motor Company does keep Volvo as part of the organization, it obviously would be more efficient to combine these two "best" product offerings under a single roof. Of course, theory and logistics don't always run side by side (meaning it is not easy to consolidate brands under a single roof).

Also, I left out Jaguar, which sold 8 vehicles per dealership in June (ranking #33). I think Jaguar is going to be sold (although I don't know who will buy them and be left with standalone Jaguar dealerships selling 8 cars a month).

But clearly if Ford were to keep the Jaguar brand, it would make sense to also consolidate Jaguar under the same luxury brand ("best") product offering roof.

In fact, maybe the best way to sell Jaguar is to include it in the sale with Volvo, so the two luxury brands can be merged under one roof (I think a bunch already sit side by side at dealerships).

Customer need #4: Reliability
On the flipside, I am not sure a consolidated dealership model (with different brands) helps the customer over the long run (when you factor in reliability). Vehicles are becoming more complicated. And once again, if Volvo is going to remain a Swedish based, safety oriented company versus a part of "one Ford," the product (vehicles) should be different.

And different vehicles (I think) mean you should have expert mechanics on each vehicle type (Volvo, Mercury, etc.).

I think the repair shop (with a dealership that has a good/better /best offering) should also be broken up into mechanics that each understands these vehicle types (good/better/best).

So do you add another set of mechanics at the dealership that understand "safety" oriented vehicles?

Once again, it just seems like the best chance I get (as a customer) of someone really knowing what they are doing working on the vehicle is if they are dealing with a common vehicle type (all Ford's, all Lincoln's, etc.).

The bottom line?
So the bottom line is that in order to serve the new vehicle buying population best. . .

Either Ford needs to become like Volvo. Volvo needs to become like the rest of Ford.

Or they need to be separate organizations.

F-VOLV 1-yr chart:

Comments

[Neimon:]

Interestingly, I feel, as an owner of two Volvo 240s, Volvo has abandoned the "other" Volvo trait: Longevity.

Safety has obvious value to people with a high sense of entitlement - the "upmarket" crowd - so I guess that's why. But my 240s are both over 200,000 miles, tough as nails, comfortable as an well-made shoe (with the best seats I've ever sat in) and big enough for any family. I wish I felt the same way about, say, the new C30, but it looks like a lot of plastic and electronics that will die off in the Maine winter, and it's just not appealing to me.

I guess since I'm not rich, I don't count. Too bad. Volvo used to be unique. Now it's just for rich people who want to live forever. Their cars are no longer the smart used buy they once were for people like me. Not that there's anything wrong with that. Markets are markets. But it's a shame that ethic is no longer wanted.

2007 Sep 18 10:25 AM