In the face of an evolving customer base and a rapidly changing ecosystem, car subscriptions have the potential to help OEMs and dealerships future-proof their businesses. So why have they yet to experience widespread adoption by the automotive industry? It’s time to bust some myths and reveal the truth about this innovative digital mobility solution.
Over the past few years, many OEMs have started rebranding themselves as being mobility players who offer services beyond just traditional vehicle sales and maintenance. This means that digital mobility services such as car subscriptions and digital rentals are entering the conversation, especially as OEMs and dealerships are grappling with how to cater to an evolving customer base. For instance, Millennials and Gen Z have grown used to using subscription services for things like TV, music, and shopping. Will this inclination towards convenience, coupled with a growing sense of urgency to reduce their carbon footprints, extend to how they approach consuming higher-cost goods like a car?
Many signs point to ‘yes’, younger generations are generally less likely to adopt private car ownership than those generations before them. In addition, we face the undeniable fact that the world is urbanizing and in less than 30 years, more than two-thirds of the world’s population will be living in urban areas. In Europe, this level is expected to hit 83% and in the United States, the percentage of the population living in cities is projected to be close to 89%. As city dwellers are far less likely to own a car, OEMs need to pivot to match the consumer’s changing needs and future-proof their business.
Between a rapidly evolving customer base and the fact that the car subscription market is expected to reach USD 15.56 Billion by 2030, it seems like a winning solution for OEMs and dealerships to adopt. However, there remains an underlying belief that the car subscription model is a waste of time and money at best and at worst, will completely cannibalize car sales. In fact, there are quite a few common and enduring myths surrounding the car subscription model which need to be debunked.
Myth 1: Car Subscriptions are bad for business
This first myth is likely the one we hear most often, that consumers will opt into subscription services pulling them away from buying cars, aka the big ticket item.
Access an untapped pool of customers
One of the big advantages of offering services such as subscriptions is that it opens up access to an untapped pool of customers. For instance, Porsche says that 80% of users of its subscription service, Porsche Drive, are new to the brand, while Volvo claims that this percentage is even higher at 91% for the UK branch of its subscription service, Care by Volvo. Bringing these new customers into your brand’s fold via subscriptions not only provides an immediate, fresh revenue source, but they can also play an even larger role as a tool to secure the lifetime value of a customer.
Increase physical and digital touchpoints
Digital mobility services like car subscriptions encourage increased touchpoints with a customer, allowing dealers to better control their funnels. If a customer buys a car, the dealership may hear from them only once or twice per year for routine checks and maintenance which, in itself, is mostly a transactional experience. In addition to increased physical interaction with the customer (delivering the vehicle, picking it up for maintenance, switching the model etc.) car subscriptions allow for OEMs and dealerships to also be in constant digital contact. This provides the opportunity to market to them in new and interesting ways such as sharing updates about the subscription program and new models available or sending them compelling lifestyle content like vehicle use cases or road trip ideas.
This more dynamic relationship can easily turn into lifetime loyalty, resulting in a consistent source of revenue over the lifecycle of the customer, whether they wish to continue using the subscription service or eventually move down the funnel and buy a car. Not to mention it is easier to acquire the customer in the first place, as they will almost always sign up for a subscription digitally, without even needing to step foot inside the dealership.
Improve the lifecycle of your vehicles
Now that we have the customer on board for the long term, what about the lifecycle of the vehicle? While true that a car subscription service is an asset-heavy offering, this does not mean dealerships will need to eat the cost of rapidly depreciating new vehicles. Dealerships can remarket pre-owned cars that have already been used for a couple of years by individuals or corporate fleets. By integrating this vehicle into a car subscription, or even into other new mobility services such as a rental program, the dealership will ultimately make more money over the lifetime of the vehicle than if they decided to re-sell it immediately. Once a vehicle is deemed too old to continue being offered as a subscription, it can still be resold to B2B or B2C markets.
Berylls, an automotive investing and consulting firm, even predicts that such “vehicle as a service” models will lead to a profit increase of up to 50% and a wider customer base for OEMs as compared to the traditional sales model.
Myth 2: We already offer leasing and car subscriptions are no different
Flexibility, convenience, and, relationships
Subscriptions and leasing differ in a few key ways, with subscriptions filling some important gaps left by leasing. While a lease is normally undertaken for a period between 12 and 36 months and is difficult to break, a car can be rented via subscription for as little as 1 month or for however long the user wants. In addition, most monthly fees, such as maintenance, repairs, roadside assistance, registration fees, insurance, and taxes are also rolled into the subscription, which is an especially tempting offer for a customer who prioritizes convenience. Subscribers are also usually offered the ability to swap car models although, in reality, many prefer to keep the same model for the entirety of their subscription period.
As addressed in the first myth leasing – like buying – also provides limited touchpoints with a customer while subscriptions are about connecting with the customer and building a relationship.
Myth 3. Our customers are not interested in new mobility solutions like car subscriptions
We have already discussed why and how subscriptions can open up a new, significant customer base and fill gaps in the market left by leasing and ownership. However, a persistent question remains: just how significant will this new pool of users be and who are they exactly?
Expect a B2B boom
While we have already discussed how car subscriptions could revolutionize the B2C market, we also need to consider the B2B market, which will be an enormous driver for car subscriptions. While fleet sales make up a high percentage of domestic auto sales, these vehicles are often underutilized. In the UK, a recent study reported that average used company car mileage has recently reached record lows and it is widely accepted that the typical car is parked 95% of the time. A subscription model will allow participating companies to save money by better managing their fleet based on fluctuating needs, such as a temporary need for more vehicles in the case of increased activity and vice versa, or when new employees enter or leave the company. OEMs and dealerships also benefit as they increase the value over a vehicle’s lifecycle as it can ultimately be used across the fleets of multiple companies.
Interesting B2C profiles
Turning back to the B2C market, we see many important use cases for car subscriptions. Here are a few profiles of consumers who may opt for a car subscription instead of a lease or ownership:
- The Traveler: Those who are hesitant to commit to a lease or ownership as they rarely stay in one place for too long. For instance, “snowbirds”, which are older populations who relocate to warm locations for the winter, and spend summers in more temperate climates
- The Streamliner: Those who value convenience and flexibility – such as many millennials and Gen Z “Zoomers” – and do not want to deal with the more cumbersome aspects of car ownership (e.g. physically going to a dealership or taking care of maintenance and insurance).
- The Tester: Those who want to try a new car model before committing to purchasing it. For example, a customer considering switching to an electric vehicle but who wants to give it a test run first.
- The Eager Driver: Customers who purchase a vehicle that is not immediately available due to an inventory shortage could sign up for a subscription service while awaiting their car.
- The Busy Family: Families who may need a car (or two) during extra busy times of the year such as during the summer holidays.
The economy and the consumer
In addition, with the global economy teetering on a recession, an increase in car repossessions due to untenable monthly car costs is being reported across the United States. As car subscription financing is neither tied to inflation nor requires all users to undergo a credit check, it is becoming an attractive alternative to a growing swath of the population who are affected by soaring interest rates and maybe be nervous about committing to car ownership or leasing.
Myth 4: It will be too complicated to integrate digital mobility solutions into dealerships’ existing offers
Seamless software and professional partners
The beauty of digital mobility solutions is that they are lean and easily scalable operations made possible by all-inclusive, intuitive software platforms. Advanced software will provide everything a dealership needs behind the scenes such as user engagement, maintenance management, and pricing as well as in the user-facing front end, which can include registration, vehicle check-ups, and payment.
With the right software – and the right partners behind the software – OEMs and dealerships can roll out a subscription service in only three months. All they need to provide are the vehicles, the insurance provider, the desired price points, and some part-time resources. The software partner will do the rest. OEMs and dealerships can also scale according to their own needs and can choose to integrate subscription offers in a single location, in multiple locations, or across multiple territories or countries.
In a recent interview, Dr. Marc Rieß, Managing Director and Chief Operating Officer at Porsche Financial had this to say about his brand’s successful subscription roll-out strategy:
“We started with small steps. These included, for example, the introduction of new processes and extensive dealer training. As our partners and guarantors of quality, the operators of the Porsche Centers also play a particularly important role for [sic] Drive subscription. We have already acquired many customers.”
Myth 5: Car subscriptions have already been done before, and failed!
As is the case of any innovative technology or service, adoption often comes in waves. There was the first iteration of car subscriptions around 2018 which, as forerunners often do, faced some challenges and setbacks. Some of the services that may ring some distant bell in your memory include Book by Cadillac and Carpe by Jaguar Landrover.
A few lessons learned
These first-wave car subscription services were significantly more expensive than buying or leasing a car as they were built around the belief that the average user would accept only premium cars, and have a penchant for changing models often. It’s incredibly expensive to flip multiple vehicles per customer and the subscription prices reflected that. However, the notion that subscription users will constantly demand new, different models has been proved false. Most people do not want to go through the hassle of switching vehicles, especially if they are satisfied with their current model. While this business model is actually working very well for Porsche Drive, Porsche is also catering to a very specific clientele who are not necessarily the main target market for other brands.
Brands are finding success
OEMs are now rethinking how to offer car subscriptions. Brands such as Volvo offer different tiers of car subscriptions, including single-vehicle options and multi-vehicle options, that respond to the varying budgets and needs of consumers. Within the first year of launching in the UK, Care by Volvo was boasting almost 15% of all Volvo retail sales and has been experiencing double-digit growth month over month post-pandemic. Meanwhile, Hyundai USA has recently announced the launch of their new service Evolve+ for “EV-curious” consumers who need a car for the short term and want to test out an electric car before committing to buying one (i.e. those “Testers” we talked about in Myth 3).
Conclusion: Will you be a Blockbuster or a Netflix?
We can look to other industries to understand what happens when companies do or do not evolve to keep up with a transforming landscape or respond to consumers’ changing appetites. For instance, would you rather be a Google or a Yahoo? An Amazon or a Sears? A Blockbuster or a Netflix? The auto industry is now finding itself on a similar precipice. By integrating digital mobility services such as car subscriptions into their offers – and not falling prey to the myths surrounding them – OEMs and dealerships can future-proof their businesses and avoid disruption.
While car subscriptions play a big part in the future of digital mobility solutions, they are not the only offer available. In addition to subscriptions, OEMs and dealerships may also want to consider integrating digital rentals, carsharing or corporate fleets into their mix. Vulog is the only mobility technology provider on the market with a software solution that can host multiple digital mobility solutions at once, allowing companies to diversify their offerings and scale quickly. If you want to learn more about Vulog’s solution, or simply want to learn more about car subscriptions or other digital mobility solutions, get in touch!