Restructured sales and IT operations help Volvo boost fleet service

In an age where companies are all-consumed by driver safety and risk management, a manufacturer offering genuinely pioneering safety technology should be striding ahead in the fleet sector.

But reality rarely follows logic. Volvo has always been ahead of the pack. The first carmaker to introduce side airbags, inventor of the three-point seatbelt and, with the current generation V40, holder of the best ever test result  in the Euro NCAP test, it continues to lead with the development of safe positioning to protect occupants if the car leaves the road, road edge detection and auto braking at junctions – all of which feature on the new XC90.

Fleet market share of less than 2% seems scant return for such innovation when premium rivals such as BMW and Audi can command 5-6% of the sector.

However, more recently Volvo has been gaining traction in the true fleet sector, with corporate sales up almost 40% last year and orders continuing to flow in 2015. Its strategy is also to keep short-term rental volumes down, although the first quarter of 2015 saw an 86% leap to 2,169.

“This was a function of where our partners wanted to take cars,” says national corporate operations manager Selwyn Cooper. “Demand from them accelerated our performance, but we will see that reducing in the coming months. Our volume will be static in the future; our growth will not happen from rental business.”

Volvo’s plan is to hit 45,000 full-market registrations this year, up from 41,000 in 2014. Fleet will account for 72%, or 32,400 units, a substantial rise on the mid-40% five years ago. It’s also a higher proportion of total sales than any of its premium rivals which tend to be between 50% and 60%.

However, stripping out non-core fleet, such as rental and internal registrations, puts true business sales at 55-60% of the total. By 2020, Cooper is tasked with hitting 35,000 fleet sales. He is confident of achieving the relatively modest growth target, and not just because he’s seen the future model plan. Volvo has also restructured its corporate sales operation with the opening last year of the business centre in Harrogate, North Yorkshire.

It is delivering high quality fleet appointments to Volvo and its retail network – half existing customers and half potential conquests – and has removed the administrative burden from Cooper’s team, freeing up more time to spend with customers.

Allayed to this is a move to segregate the dealer network into three tiers which began last year. Ten retailers have been appointed tier one – they service national accounts with leasing companies and have a robust sub-structure to service the local market.

Tier two consists of 20 outlets, which also have a strong local presence with dedicated business sales manager. They will do some leasing business but only where the contract hire company directs work their way.

Tier three dealers – effectively the rest of the network – will have a nominated business sales specialist. However, this responsibility will be part of their broader job role within  the dealership.

All three tiers will have staff who have been through Volvo’s business sales academy, which is in its fourth year. Courses now include distance-based learning. In return for dealers’ investment, Volvo has increased its support for the network by expanding the field team from four to 10.

“Market research we carried out a few years ago told us a few things about what fleets wanted from us as a brand,” says Cooper. “They wanted simplicity – the ability to deal  with us. They also wanted segmentation and IT efficiency.”

The dealer tiers are one example of segmentation, the launch of the business centre another.

Cooper explains further: “As an industry we tend to talk to fleets as if they were one single unit. But they aren’t – they all have different needs. For example, we send contract hire managers the same stuff as residual value managers; we send the same marketing information to fleets as we do for retail advertising.”

An internal shake-up has seen the appointment of a dedicated fleet marketing manager, Kay Saunders, as well as an expansion of Cooper’s role to incorporate all parts of the fleet sector (previously he was responsible only for corporate sales, not end-user sales).

“This is helping our dealer network to understand the different types and size of business,” he says.

IT efficiency, meanwhile, requires Volvo to invest in its website. Cooper says: “Small businesses have spent their lives keeping their business going over the past five years. They use the internet a lot and we have to make sure that our website is best-in-class so they get what they need.”

The company recognised it needed to free-up funds for investment, he adds, because “we were resourced for recession but we needed to be resourced for growth”.

Leasing dominates Volvo’s fleet business, accounting for 70-75% of sales, of which up to one-fifth is via Volvo Contract Leasing, a white-label partnership with Lex Autolease.

“We have a great relationship with Lex but we have to be cognisant of the relationships we have with other leasing companies who are essential for our business,” Cooper says. “We are seeing more owner-drivers coming in to contract hire because they see the benefits.” And they aren’t the only ones, he adds: “We are becoming a rental society and the concept of renting a car works today. Retail take-up on PCPs is increasing and is especially attractive to younger buyers.”

Low interest rates have helped to increase the appeal of PCPs, assisted by heavy discounting by manufacturers keen to exploit the robust economic recovery in the UK, but will it be sustainable when rates start to rise?

“As the rest of Europe recovers, will manufacturers be as aggressive in the UK?” asks Volvo Car UK managing director Nick Connor, rhetorically. “Probably not.

“The UK has had a sweet spot for the last three years. The question is how long will it continue – the answer is probably not too long. Things will become less attractive over the course of the next five years, but it will be a gradual averaging out not a major plummet, as Europe strengthens.”

He predicts that some of the “more extreme activity” will be reined in, such as pre-registrations.

“We don’t encourage our dealers to do it; we don’t sign off those deals at month end. We are small so no one cares about whether our market share is 1.1% or 1.2%.”

Connor puts a great deal of credit for Volvo’s recent success down to Zhejiang Geely, its Chinese parent which bought the company in 2010. It is investing heavily – $11 billion (£7bn) according to media reports – into new product development, resulting in the new XC90 with a new small car platform to follow. Over the next four years, Volvo will be launching on average two new cars a year, some of which will be in new market segments – by 2020 the XC90 launched this year will be its oldest model. Without Geely’s deep pockets and committed management, this would not be possible.

“They have been very hands off,” Connor says. “But they get the environmental issues, they get safety and they are bought into our 2020 vision.”

2020 is Volvo’s ambitious, though highly laudable, safety aspiration summed up by the statement: “By 2020, nobody shall be seriously injured or killed in a new Volvo.”

Dating back to 2008, it underpins all product research and development. It’s an aspiration matched by many fleets through their own Zero Harm initiatives and saw the launch in 2014 of Co-Pilot whereby Volvo pledged to provide every fleet buying one of its cars online risk training for up to 20 drivers and support with fleet consultancy and licence checks. Volvo believes Co-Pilot “creates dialogue” for fleets to discuss safety and risk management, particularly for small fleets. And it gives the brand another USP.

Plug-in hope for future

While the launch of the V40 in 2012 gave Volvo a viable presence in the fleet market, arguably for  the first time – it sold 12,712 last year, accounting for almost half of its total fleet volume – the XC90 will be the statement car.

Pre-launch sold orders were running at around 1,500 as the car arrived in showrooms last month with Volvo Car UK managing director Nick Connor admitting he has been “taken aback” by the strength of demand for the hybrid T8 model.

“We expected the T8 to account for 3-5% of sales, but so far orders are running at 20%. And that was before we announced CO2 at 49g/km,” says Connor, referring to the previously quoted figure of 59g/km.

“We could even see that order rate increase further because it is such a strong business case  for company car drivers.”

Using only the electric motor, the seven-seat XC90 T8 will travel around 26 miles on a single charge. Official combined fuel economy is around 166mpg – possible, although 100mpg is more realistic.

“We see our future in plug-ins,” adds Connor. “All our cars from the XC90 onwards will have a plug-in petrol option. That’s the future, not diesel. If we want to sell large cars in Europe, we will have to have hybrids.”

But despite this commitment, Connor is also concerned about the current backlash against diesel. He supports the industry lobbying on Euro 6 diesels, pointing out they are as clean as petrol in terms of particulate emissions.

“Demonisation of diesel is absurd,” he says. “It’s a knee-jerk political reaction.”