California new car dealers granted DMV investigation sought in Volvo petition

Sacramento, Calif.—The California New Car Dealers Association (CNCDA), representing nearly 1,200 new car dealerships statewide, successfully convinced the New Motor Vehicle Board (NMVB) to unanimously direct the Department of Motor Vehicles (DMV) to conduct an investigation into Volvo Car USA concerning Care by Volvo (CbV).

At a public hearing  before the NMVB to consider the petition filed earlier this year by CNCDA,  the association presented arguments against Volvo, claiming that as a licensee of the DMV, Volvo has been in violation of the California Vehicle Code (VC) by introducing CbV.

CbV is aimed at getting consumers to lease their cars directly from Volvo, instead of buying or leasing them directly from a Volvo dealership. Described by Volvo as a “subscription” program, CbV offers customers a two-year lease with a fixed, standardized, pre-determined monthly charge including cost of the vehicle, insurance, maintenance, road hazard protection and normal wear and tear. CbV is currently available for two Volvo models – the XC40 and the S60. Both models are also sold and leased by Volvo dealers directly to consumers outside of the CbV program. 

CNCDA claims allege that the CbV program is illegal and violates several provisions in the California VC aimed at protecting franchisees and consumers, each of which constitutes a separate ground for disciplinary action against Volvo’s DMV license under the law. 

The NMVB unanimously agreed that CNCDA’s claims were warranted and directed the DMV to investigate the following specific allegations:

1. Care by Volvo Creates Competition Between Manufacturer and Dealers
   1. CbV diverts customers away from dealers to Volvo with the ultimate goal of bypassing the franchise model entirely.
   2. Such business practices are prohibited under California law and undermine the fundamental purpose of California’s robust new motor vehicle regulatory system.

1. Volvo’s Failure to Give Written Notice to Franchisees and the Board About CbV 
   1. The VC prohibits franchisors such as Volvo from making franchise changes that would “substantially affect the franchisee’s sales or service obligations or investment” absent 60 days’ written notice to the affected dealers and to the NMVB.
   2. CbV is a franchise modification as it fundamentally alters the way dealers sell vehicles and requires a notice to the franchisee and to the NMVB which Volvo did not provide.

1. The CbV Program Preferentially Allocates Vehicles and Refers Sales to Dealerships Controlled in Part by Volvo
   1. California auto manufacturers are prohibited from giving preferential treatment to dealerships controlled by them in whole or in part.
   2. Volvo assigns a share of certain highly desirable, limited supply vehicles to CbV dealers to the exclusion of non-CbV dealers who are not controlled by Volvo.

1. The Care by Volvo Program Undermines the Purpose of Prohibiting Payment Packing
   1. CbV’s flat monthly lease amount conceals the actual cost of the CbV vehicle and the bundled services and fails to disclose that the costs will vary between CbV customers.
   2. California law mandates that dealers disclose, prior to contract drafting, all charges for goods and services to be added to a contract for the sale of a vehicle. Volvo seeks to escape this restriction by requiring dealers to perform its DMV paperwork.

“We are extremely pleased with the outcome of the hearing and are encouraged that the New Motor Vehicle Board agreed that all four of our claims against Volvo deserve DMV investigation. 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,” stated Brian Maas, President of the California New Car Dealers Association. “Our dealer members support innovation, 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. We look forward to the results of DMV’s thorough investigation into our claims and are hopeful that this illegal behavior will be stopped and punished.”

The NMVB also requested the DMV provide the Board with a written report on the results of its investigation within 180 days.