Any time there is news about the Volvo V40 there are always a wave of comments demanding that Volvo bring the V40 here and complaining that they will not. Instead of complaining about it lets look at some data and try to build a case for it. To do this first we have to make a series of assumptions. Some of these assumptions are probably pretty accurate and some of them are Wild Ass Guesses. It is the nature of estimating that you have some of both and there is nothing much to be done about that.
I took all sales data from http://www.goodcarbadcar.net/
The first assumption is that Volvo can bring the V40 into the USDM and make a profit. I do not know what Volvo’s margins on the car are but my guess is that they cannot bring it into the US and make a profit at their current cost structure. In order to have a shot at bringing the V40 in the XC40 has to come to as I think that is where most of the volume and more importantly the higher margin volume will come from. They will be able to charge more the the XC40 then the V40 and the segment that the XC40 will enter is growing.
This goes into the second assumption. There is a growing market for small, as in under mid-sized to compact, premium SUVs. We can see that happening in the market. BMW has launched the X1 in the US and while it is has only been on sale for a couple of months it seems to be doing well. It has been on sale longer in Canada and has out sold the X3 in some months there. Audi brought the Allroad back based on the A4 and there will probably be another more SUV like Audi coming in under the Q5 in size. Porsche will bring something under the Cayenne in size soon as well. The Land Rover Evoque is another model to consider. That is a very expensive but very small crossover and sales have been strong considering what a tiny slice of the market Land Rover has.Already on the market is the VW Tiquan, Nissan Rogue and Nissan Juke. What you say the Tiguan, Rogue and Juke are not premium nameplates? No, they are not but they have some premium features and can be priced out into the high $20k to low $30k range.
Volvo is not typically considered a Luxury brand and that is usually seen as a weakness but I think here is where a weakness can be used as a strength. Volvo is still seen as a premium brand if not a luxury brand and it can use that to reach a little lower into the automotive food chain. This is really the third assumption. That Volvo can pluck a hand full of sales off the top end of those lower level models. Someone who is looking at a $30,000 plus Tiquan or Rogue or a $26,000 Juke will bump themselves a couple of thousand dollars or more for a Volvo. With the right mix of unique features and a good branding that can happen. The same will have to happen with the V40 to pick a few sales from the top of the Focus, Mazda 3, Golf/GTI and Jetta Sportwagen among other models. BMW and Mercedes have had trouble doing this but I think Volvo can pull it off. Call it the snob factor.
The last big assumption is not really an assumption per say but that Volvo needs to do this to keep sales up. Volvo canceled the S40/V50 in 2011 and the C30 was just officially canceled. The C70 will go away sometime next year too. Those four models combined would represent some 14,000 sales in 2013 using the numbers from the last full years the S40 and V50 were on sale. The elimination of all these models is the reason Volvo’s sales are off about one percent for CY 2012 through September and over two percent through October. The big gains in XC60 and S60 sales cannot make up for losing the S40/V50 and the slowdown in the S80 and XC90 as they are aging out. Volvo needs a redesigned XC90 badly but they also need a lower priced model to bookend the whole range.
Remember the S40 alone accounted for over 24,000 sales a year from 2004 to 2006. As Volvo’s relationship with Ford Credit ended and leasing got tougher those sales dropped off to just over 18,000 in 2007 and then dropped off a cliff to just over 9,500 in 2008 when the recession was fully in swing. The V50 never got above 6,000 sales per year even in the good years but it was never really pushed hard in the US. It suffered from the assumption that lots of euro companies make that small wagons or hatches will not sell in the US. By the time things started getting better in 2011 the S40/V50 were no longer competitive cars and leasing was still shot. A competitive product in that price and size range with the right marketing support could reclaim much of those sales back. The last part of the puzzle is competitive leases that will hopefully start coming back in 2013. In the premium segment you have to have a strong lease. It doesn’t have to be ridiculous like the BMW leases, $40,000 plus cars leasing for less than 5000 a month, but it has to at least be competitive in the segment.
Now with all those assumptions out of the way can Volvo get to 14,000 or more sales with the V40/XC40 in say 2013? Yes, I think they can if they brought the car over in the the second quarter of 2013 they could hit an annual sales rate of over 14,000. With the right timing and marketing/incentive push I think they could hit a total of 14,000 sales in 2013 even with that late introduction. Is that going to happen? No, I doubt it but an introduction later in the year could happen or possibly something for Q4 2013 or Q1 2014.
I started by taking the September YTD sales total of a variety of vehicles that I thought would be direct segment competitors for the V40 and XC40. Then I looked at vehicles that would be more indirect competitors. Just for example the A3 is an obvious direct competitor to the V40. They are both small wagons/hatchbacks, they are in the premium segment with similar front wheel drive or all wheel drive setups and they could be perceived as sporty. That ticks off enough boxes to be direct competitors. The VW Sportswagen works as well as does the Golf or GTI.
What about an indirect competitor?
A Ford Focus is an obvious indirect competitor. It is not really in the premium segment though it can have some premium features. The body style and drive type are similar enough that people will cross shop a Focus with a V40 at least at the top end of the Focus price range. A less obvious competitor would be a Prius. If Volvo brings the V40 with some type of alternative power train then the Prius ticks enough boxes. Without that alternative power train I think the Prius drops off the list. People can and do look at a variety of cars across multiple segments when looking at a vehicle but not at the rate the rate that you can use that for sales volume projections. The handful of people who cross shop a Mustang with a V40 or a CTS wagon with a XC40 because they are both sporty and in the same price range is not going to get you many sales. These less obvious indirect competitors is why I am using such a low top end percentage for this segment. I am only figuring a one percent top end and half percent bottom end market share for the non-premium small wagon/hatch segment.
All of this of course exists on a spectrum. Some cars are more direct competitors than others but in trying to estimate the potential first year market you have to cut out some vehicles. The volume of light duty pickups sold in the US every year is huge but I do not see those sales volumes effecting the sales of a V40 or XC40 by even the tiniest percentage. This is why I am using a top line seven percent figure for the compact premium crossover segment. I think the best Volvo can hope for is a seven percent share in that segment with a properly priced XC40. Volvo’s current share of the small to midsized premium SUV segment is about 6.3 percent with the XC60. Sales are up some 35% this year versus last year which is a greater YTD percent change than any other model except for the Acura RDX and the Evoque. The Evoque was not on sale for all of 2011 and RDX sales were soft last year as Acura got rid of the turbo engine for a six cylinder. Market share will be up slightly year over year for the XC60 compared to 2011 CY. The XC40 will be a class size smaller as it is roughly 10 inches shorter than the XC60 at 173 inches.
I am going to include links to the spreadsheets I worked on for this article. Feel free to change assumptions or subtract and add various competitors. The formulas will still work to change the volume projections for the V40/XC40.
These are the tables for Crossovers/SUVs. The compact segment first.
|make/model||price max||segment||2012 YTD Sales||2013 WAG|
|MINI Countryman||$27,000||compact Prem||15,345||17,000|
|BMW X1||$38,000||compact prem||2,146||20,000|
|Land Rover Evoque||$45,000||compact Prem||6,235||8,750|
|Land Rover LR2||$35,000||compact Prem||2,417||3,000|
|VW Tiquan||$37,000||compact Prem||22,854||28,000|
|7% of Total||3,430||5,373|
|3.5% of total||1,715||2,686|
Then the smaller midsized models.
|Infiniti EX||$40,050||midsize prem||2,480||7,500|
|BMW X3||$43,600||midsize prem||22,591||32,000|
|Acura RDX||$35,720||midsize prem||19,801||22,000|
|Audi Q5||$43,900||midsize prem||18,987||28,000|
|Caddy SRX||$50,000||midsize prem||40,224||58,000|
|Merc GLK||$39,000||midsize prem||20,141||30,000|
|Volvo XC60||$45,000||midsize prem||13,750||16,000|
|Lexus RX||$45,000||midsize prem||67,048||88,000|
|Audi A4 Allroad||$40,000||midsize prem||2,243||5,500|
|1.5% of total||3,109||4,305|
|0.75% of total||1,554||2,153|
Lastly we have the non-premium segment and over all projection totals for all crossovers and SUVs.
|.05% of total||3,853||4,610|
|.025% of total||1,926||2,305|
|high total total||14,288|
|low total total||7,144|
As you can see the compact non-premium SUV segment is huge. Volvo only needs to capture a small portion of this segment to generate big volume for them. Volvo’s September YTD sales are only at 57,635 so even getting an extra 10,000 sales from the XC40 alone would be a seventeen percent increase.
Sales will approach one million units in 2013 even using just this particular sampling of models. The models I left off could have similar prices to a XC40 but I just did not see them as similar cross competitors to a potential XC40. I could be wrong about that but seventeen years in the auto business lead me away from them. Vehicles like the Dodge Journey or Chevy Equinox might have similar pricing and size but just do not line up with Volvo demographics for customers. People may still cross shop them but the probabilities of them doing that are low. These models represent huge volumes so they can throw off the projections easily even with low penetration of 0.05 and .0.25 percent. I left the Escape on there as it was just redesigned and seems to have a much more premium feel like much of the Ford line. Also it does have the hybrid version and Volvo really does need to bring some type of alternative power train to the US. The V40/XC40 would be a good model to introduce using some type of hybrid or diesel power train.
The next two tables are for the small wagon and hatchback vehicles.
|Make/model||price max||segment||2012 YTD Sales||2013 WAG|
|7% of total||2,689||3,570|
|3% of total||1,153||1,530|
|Toyota Prius V||$31,000||hybrid||25,000||35,000|
|1% of total||5,363||7,850|
|.5% of total||2,681||3,925|
|high total total||11,420|
|low total total||5,455|
I left the Veloster in there as even though it is at the low end of the price spectrum it does have a sort of funky sporty vibe that I can see appealing to potential V40 buyers. Cars can be added or subtracted from this list as well. I picked these vehicles based on my years selling cars and what I have seen as common trends from buyers in my area. The northeast is an important market for Volvo but it is not the whole country so different regions might see different trends. In the Northeast Subaru is a very important competitor to Volvo. In other parts of the country this might not be the case.
There are a couple of cars I left off my spreadsheet that I may add in later to reshuffle the details though I do not think they will change the overall projections. After working the Hartford auto show on Saturday I would probably drop the RAV4 from the crossover list and add the Kia Sportage and Hyundai Tucson. Even the RAV4 Limited seems downmarket and dated compared to those two models. Compared to the new Escape the RAV4 seems at least two if not three generations behind. The Subaru XV Crosstek is another model that could be added to the list but it has only been on sale two months so there is not enough data. September was not even a full month of sales so I would have to revisit it after a couple of more months to try and work up a projection. I started working on this in the middle of October but was not able to finish it till tonight so I have left out October sales data for right now. I do not anticipate that to change the final numbers that much. The final totals are in the following table. I started by inputting the sales totals from the C30, C70, S40 and V50 in 2012 and 2011. The 2011 CY was the last full year that the S40 and V50 were on sale. Assuming these totals held roughly the same then Volvo could have expected sales of just over 14,000 units if all four models had continued into 2013. The S40 and V50 would have been outdated but an improving car market and economy should have helped to keep sales at least even and hopefully the C30 and C70 would improve over their 2012 and 2011 totals.
|A shortfall over over 14,000 units in CY 2013|
|Platform Total high||25,708|
|Platform Total low||12,599|
In the platform totals I added in the high and low projections for both the V40 and XC40 to come up with a top line figure of 25,708 and a bottom line figure of 12,599. A V40 and XC40 properly priced and marketed should be able to better that 14,000 annual unit figure in an improving economy going forward in 2013 to 2014. An annual sales rate in the 20,000 range would be enough to offset Volvo’s drop off in the XC90 and XC70 at least till the XC90 can be redesigned. The key is launching the V40 and XC40 in the right price range.
A V40 base model with front wheel drive and a non-turbo engine needs to start in the low $20,000 range before destination. A $21,995 starting price without leather and a sunroof would be a good entry level price. The stop end V40 could approach the mid $30,000 range with leather, moonroof, Navigation plus other premium features. A manual transmission would be good to offer on the front wheel drive models. Hopefully Volvo would offer AWD on both the V40 and XC40. The XC40 could start higher at $25,995 to $26,995 with more standard features. The top end line on the XC40 should just surpass the bottom end price range of an AWD XC60. A fully loaded XC40 should come in just under $40,000. I think these are good top end prices for a normal V40 or XC40. If Volvo wants to do some type of R-Design sports model then you can inch that top end number up a few percent but not more than three or four percent in my opinion. While pricing is important in order to be competitive with the other premium and luxury brands a strong lease will be necessary. A base V40 with automatic needs to have a low mileage lease in the $229 range with minimal out of pocket. Some kind of introductory sign and drive program at around the $250 mark would be perfect. The XC40 can be slightly higher but $400 plus a month leases like Volvo has for the S60 are not going to be competitive in the market.
There you have it how I think Volvo can expand their brand and recapture some of that lost sales volume from years past. The premium compact SUV market is going to be an expanding segment in the coming years and Volvo needs to have an entry there. I already see baby boomers moving out of their larger SUVs into smaller SUVs. They want that higher driving position and an easier time getting in and out that a SUV offers. They do not want and large vehicle anymore and with no kids they do not need one. Right now Volvo only has the XC70 or XC60 to offer empty nesters moving out of the XC90. Some of these customers are choosing the XC60 but somewhat something a little smaller with better mileage. The XC70 is lower to the ground which some customers like but it does not get better mileage. The XC70 also unfortunately still carries some of that wagon stigma that turns a few people off. A XC40 priced right would be a perfect fit for customers who want something a bit smaller. Offer it with some alternative power trains, that do not necessarily have to be a hybrid, and you will satisfy both the gas mileage and image conscious.
Here is the link to the spreadsheets I used to calculate volume projections.