Volvo stand-alone avoids red ink, builds for future

Kevin Flanagan's Volvo new-car sales are half of what they were in 2001, and the brand itself is teetering in the United States.

Smythe Volvo in Summit, N.J., is the only franchise Flanagan, 47, and his family hold. But Flanagan has faith in Volvo and its future -- so much faith that he's creating a $2.5 million store that will open in six to eight months. And the dealership has not lost money despite the brand's problems.

The $2.5 million investment is just for the building, a former Chevy store less than a mile away that's being gutted. The land, scooped up during the depths of the recent housing crash, was an additional cost that Flanagan won't disclose.

Flanagan figures that within two years his sales will return to the 1,000-unit level he hit in 2001. This year he expects to sell 500 to 550 new cars.

Times have been tough, but Smythe Volvo put more focus on used cars and "doubled down on customer service and satisfaction," said Flanagan.

And during the really dark period when the auto industry crashed in 2009, "We literally got down to the nitty-gritty of who our light bulb suppliers would be," said Flanagan.

Smythe Volvo is a family business started by Flanagan's father, an Irish immigrant, and his partner, David Smythe, from whom the Flanagans bought the store in 2010. Smythe and Sean T. Flanagan. Kevin's father, met in 1963. Smythe had a showroom, and Flanagan, a mechanic and troubleshooter who also sold used cars, had a new franchise from Volvo. Two years later they were running Smythe Rambler Volvo.

The Rambler business went away, and they later sold MG, another unsuccessful brand.

The business is now owned by Kevin Flanagan; his father, Sean T.; and brother Sean D., a vice president who runs the service and parts side of the dealership. Flanagan's brother Brian, a lawyer, closed the real estate deal on the new store. Another brother, Kieran, is a partner in the construction company that is fitting out the new store.

Smythe Volvo has 40 employees -- 10 in sales and 30 in service and parts. Parts and service revenues have been a major driver in the store's profitability, said Kevin Flanagan.

"We have not lost money any month throughout all of this. Our back end has driven the business," he said. "We've also been profitable on front-end sales."

Three staffers were let go in 2009, but one was rehired and two additional employees were added, bringing the employee count to precrisis levels.

The store has about 35 repair orders each day. The service business benefitted from Volvo's Safe Secure 5-year/60,000-mile new-car warranty that ran for several years and ended this year. The longer program "has been a godsend for Volvo dealers," because it drives a lot of service business to the store, said Kevin Flanagan.

The warranty is back to 3 years/36,000 miles because Volvo needed money for a new dealer margin program and to boost its marketing budget by about 30 percent this year. Kevin Flanagan doesn't begrudge Volvo that move and says the new margin structure -- which offers up to 17 percent on the S60 compact sedan and XC60 compact crossover and 16 percent on all other models -- is helping him pay for the new dealership.

All 12 technicians work from 7:30 a.m. until 4 p.m. weekdays. Three or four are on duty for several hours on Saturdays. The dealership also switched from a salary shop to a flat rate pay structure for its technicians.

"It resulted in an improvement in efficiency," said Kevin Flanagan. "They are paid per job."

'Line-by-line' review

Kevin Flanagan said that to save money, the dealership went through its bills "line-by-line" to find efficiencies.

Afterward, each manager was required to initial every check paid out by the department. "That makes them all more responsible," said Kevin Flanagan.

Each quarter, managers of each department review the checks of another department to scout for savings "and to get a sense of what the costs are in running a business," he said.

Every month, each manager has to think of three ways to make money and three ways to save money, Kevin Flanagan said: "I keep on challenging them to come with great things."

For instance, at the service manager's recommendation, new cars aren't fueled until they are delivered to a customer. Before, they were fueled after arriving. The dealership often swapped cars with another store, "and we ended up giving that fuel to another dealer," he said.

The parts manager had a suggestion the store also used: Buy windshield washer fluid by the drum rather than by small individual bottles and then fill the bottles.

For used-car repairs, the dealership scouts for cheaper parts at salvage yards.

The dealership used to drive cars to a local car wash. Today cars are washed on its premises by a contractor.

The dealership also hired StrategicSource, based in Bloomington, Minn., to analyze spending and do its shopping for items such as janitorial supplies and a new phone system.

"You have to do everything when the economy tanks because there is enough that you can effect cost savings," said Kevin Flanagan.

Room to grow

Kevin Flanagan says he's optimistic about Volvo's future since the company was sold to China's Zhejiang Geely Holding Group in 2010 by Ford Motor Co. Kevin Flanagan says that under Ford, Volvo "was the red-headed stepchild," and "the product started to get 'Ford-ized.' We didn't have the ability to design and build what Volvo wanted."

The new products will start to flow with the V60 wagon next January, followed by the redesigned XC90 crossover in early 2015, and then an S90 big sedan and redesigned S60 and XC60, said Flanagan.

Smythe Volvo has doubled its monthly used-car sales since the financial crisis to about 25 units, said Kevin Flanagan.

The new store will be about 50 percent bigger than the current one. The showroom will house up to eight vehicles, twice as many as today. The store will have windows in the sales area so customers can view their vehicles being serviced.

Has Flanagan thought about adding another franchise to make it easier to weather a downturn like the slump in Volvo sales? Northern New Jersey is densely packed with franchises, and it's difficult to find one that's not too far away from Summit, Flanagan said. "I do not want to be going from town to town."

Flanagan admits Volvo "is a tougher brand," and that he's been asked "what the heck are you doing with Volvo?"

The upside is Flanagan and his team are focused, he said. "We do not have a lot of distractions and say, 'We will neglect this one and eventually return to that one' -- which happens with a lot of multibrands. We have to dig down."