Car Subscription Services Are the Future of Vehicle Ownership

The various mobile apps and digital innovations are all directed towards one unified purpose: streamlining the customer experience and fulfilling individual needs.

The digital economy is all about customer experience. People today expect marketplace interactions to be personalized and streamlined, and companies are showing terrific creativity in meeting these expectations. Platforms like Netflix and Spotify entertain the touch of a finger or a spoken word, and retailers use all kinds of innovations to make shopping more fun. Buying a new car, however, is still an ordeal for most people. It’s the opposite of seamless. Customers are forced to undergo high-pressure sales, financing cliffhangers, and hardball negotiating tactics based on their credit scores. Vehicle subscription and car-sharing models bring a welcome alternative to these confrontational tactics while offering a sustainable response to changing consumer attitudes. Here’s a look at how these programs work, and what market forces converged to inspire them.

Automobile Makers Embrace Subscription Option

When users join a subscription program, they pay a weekly or monthly fee for access to a new or slightly-used vehicle. All maintenance, in most cases insurance, and even roadside assistance are included in the price. A concierge delivery and pickup service is also part of most subscription packages. The driver’s relationship to the vehicle is similar to that of a renter, except that the duration tends to be longer. Also, the customer has much more choice when it comes to model, color, accessories, and options. Furthermore, unlike car rental, subscription programs often allow the user to freely swap one car for another, depending on that day’s need. A commuter may opt for a fuel-efficient sedan during the week and then go for an SUV for a family road trip. No long-term commitments are involved, and the user can discontinue the subscription during periods when they don’t need a car.

Many major auto manufacturers have joined the subscription space. These brands include Cadillac, which claims to be the “first of its kind luxury subscription service,” as well as Ford, Volvo, Lincoln, and even Porsche. As more OEMs (original equipment manufacturers) in the auto industry seize the opportunity to enter the subscription market, it begs the question: What pain points are being relieved by these alternative arrangements? One can find the answer to this question by taking a look at the current automobile marketplace from two perspectives: that of the manufacturer, and of the consumer.

The Manufacturer’s Viewpoint: A Diminishing Market

In June 2017, the Federal Reserve reported that the number of new vehicles bought per 100 people has dropped significantly over the past fifteen years. This statistic holds true for every age group except those 55 and older. Furthermore, people today hold onto their cars for longer than ever before, according to CNBC. The average length of ownership now is about 79 months, and the typical consumer vehicle on the road is over 11 1/2 years old. While this trend partly results from the fact that cars are made better now than they used to be, CNBC notes that there’s another major force at work: “[Millennials] find the process of purchasing very very overwhelming.”

Concepts of Ownership are Changing in the Sharing Economy

Among the younger demographic, enthusiasm for new car purchases has waned; a survey for personal finance site NerdWallet revealed that 43 percent of millennials regard owning a vehicle as “a hassle.” Members of this generation are increasingly inclined to view vehicles as transportation, not status symbols. Furthermore, Gartner research found that half of all respondents indicated that they’d be open to a car subscription model. Moreover, when the question was asked of those who use ridesharing apps like Uber and Lyft, nearly everyone answered positively.

Clearly, the car subscription model offers direct financial benefits to manufacturers and dealers. However, it also provides them with a crucial indirect dividend: By creating a great customer experience — one that’s about choice rather than obligation — the auto industry can change people’s not-so-pleasant associations with acquiring vehicles.

The Improved Customer Experience: Flexibility and Freedom from Hassles

Almost no one relishes the prospect of negotiating an auto purchase or lease at a dealership. The hard-edged sales tactics and the “I’ll have to ask my manager” routine is not popular among any group of consumers. A subscription program puts the consumer into their first-pick vehicle in less than 10 minutes. The average car buyer, from start to finish – beginning with an internet search and ending with their signature – carves out a grand total 14 hours and 48 minutes for the hunt, according to a recent study conducted by Cox Automotive. Not only that, it’s stressful for car buyers to cope with the fact that the amount they’ll pay for a financed car is heavily dependent on their credit score. Huge volumes of consumer financial advice center on preparing several months in advance for a vehicle purchase, including workarounds like opening another credit card in order to lower the credit usage ratio.

Uber and Lyft achieved success because they saw an opening for a more pleasant, personalized taxi service. They knew that people craved the safety of knowing that a taxi driver in an unfamiliar city or country wouldn’t overcharge them. Similarly, it was almost inevitable that a digital alternative would arise to the predatory and confusing environment that still prevails at most auto dealerships.

Understanding the Value Proposition

The subscription model for retail goods is still a relatively recent invention, and when this concept is applied to vehicles, consumers aren’t immediately clear on whether it makes financial sense. At first glance, the monthly subscription fees (which range from about $450 for Ford’s Canvas program up to $3000 for Porsche’s upper tier) can seem high when compared to ownership. However, once the cost of owning a car is carefully reviewed, including down payment, monthly loan installments, insurance, maintenance, and depreciation, then the subscription numbers look more favorable. In 2016, AAA estimated the average annual cost of owning a vehicle at $7290, not including gasoline. This breaks down to about $600 per month and still includes all the headaches of personal vehicle ownership.

The Perfect Niche for A Mobile App

Companies like Flexdrive are rapidly expanding their user base by providing entrepreneurial organizations, large dealership groups, individual dealerships, and owners of large fleets, with a license-based subscription platform. With Flexdrive, a user can register and choose their vehicle online, from the comfort of their home. Eligibility requires a credit card, but no credit check. Customers simply have to hold a valid driver’s license, be at least 25 years old, and have a reasonably good driving record. The app spells out all charges ahead of time, so no haggling is needed. Furthermore, the service protects the consumer’s most important resource: their time.

Automotive Experts Recognized an Opportunity

Flexdrive wasn’t invented by some visionary group of 20-somethings in Silicon Valley. Instead, it’s a timely response to the automotive digital evolution by companies that have been in the industry for many decades. The idea and the app were created by Cox Automotive (producer of Kelley Blue Book and Autotrader) who also recently entered into a joint partnership with Holman Enterprises. The latter company is a global automotive conglomerate founded in 1924. These organizations, with their fingers on the pulse of automobile consumer sentiment, realized that it was time for an alternative to traditional car ownership. “The modern marketplace is asking for mobility solutions, not just transportation,” according to Brian Bates, Holman Enterprises CEO.

Car-Sharing Models are Also Being Tested by Auto Brands

In addition to the subscription services mentioned above, some automakers are venturing into the car-sharing economy. More like a halfway point between subscription services and Uber, car-sharing services like Zipcar and Car2Go have been around cities for some time. Now BMW is experimenting with ReachNow, a car-sharing arrangement typically used for one-way travel and single day trips. Users can find available cars by looking on their ReachNow app, and then remotely unlock the one that’s most convenient to their location. After using the car, they can simply leave it anywhere within the covered region.

BMW is now testing this mobile app in Seattle and Portland. Car2Go, owned by Daimler, is the largest car-sharing company in the world. It currently offers tiny Smart cars and Mercedes Benz models in 26 locations on three continents. Meanwhile, GM is further elaborating its participation in the car-sharing economy with Maven Gig, a halfway point between car-sharing and a subscription service.

Another compelling example of a large dealership group that’s investing in their own subscription-based service will be launching in mid-March under the name Dribe. The parent organization has been in the importing, exporting, and traditional dealership business for over 100 years. They, too, have recognized the paradigm shift and instead of fighting it, they’ve embraced the new opportunity to reinvent how they are attracting new customers.

“Rewriting the Rules of Car Ownership”

This phrase is how Flexdrive President Jose Puente characterizes the car subscription model. This model is simply the natural evolution of what today’s consumers have come to rely on: that they can have seamless transportation at the time and place of their choosing. Business opportunities in the 21st-century spring from finding new ways to meet customer expectations. The various mobile apps and digital innovations are all directed towards one unified purpose: streamlining the customer experience and fulfilling individual needs. A car subscription that allows members to use – or not use – the exact type and size of car they need offers true freedom. Furthermore, they aren’t locked into debt or the requirement to continue paying for a car they don’t really need. As self-driving cars and other transformations await, further down the road, personal car ownership may eventually become a thing of the past. The progression of successful new app-based businesses will help usher in this long-term future.

 

 

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