Consumers won’t stop buying and leasing cars anytime soon. But could auto dealers find a revenue opportunity in new mobility models, such as car subscriptions? For a recent mobility study by Cox Automotive, 75 percent of auto dealers told researchers they see a benefit in selling car subscriptions or other mobility offerings such as ride-hailing or car-sharing. The top motivators cited for dealer adoption were new revenue streams and access to a new consumer base.
Increasing numbers of dealerships are testing the waters in the subscription market, either through franchisor partnerships, or through platform providers that offer turnkey solutions for getting in the subscription business with minimal risk.
Just “A Rich Person’s Toy”?
Automobile subscriptions are getting a lot of press right now, but not all experts are thrilled by them. In a recent presentation of industry trends, Ivan Drury, senior analyst for Edmunds, called subscriptions “just a rich person’s toy.” Given the high monthly costs under automakers’ existing plans, Drury said, customers can end up paying twice what they could pay under standard leasing agreements.
Even so, some customers are adopting car subscriptions for the pure convenience of the model: You basically get personal transportation free of headaches, with insurance, maintenance, warranty, registration, delivery, roadside assistance, and even the cost of depreciation all taken care of, plus the option to “flip” cars, that is, to swap out for a different model at specified frequencies, depending on the plan.
So far, the best-known subscription plans come from automakers, so a dealership potentially has access to a program if its franchisor offers one. Some of the best-known OEM plans are:
GM recently suspended its Book by Cadillac subscription product, reportedly because of unexpectedly high costs and logistical problems in running the program. GM characterized the suspension as “hitting the pause but ton for a brief time to make some tweaks.”
Expensive OEM programs promoting luxury vehicles might be out of reach for a large majority of consumers, but Drury thinks programs that are more dealer-centered could attain market share.
“It starts to make sense when the dealer bundles services, and prices the program in a way that works for the consumer,” he told us. “It could become very compelling at the $700 price point.”
The automaker-based vertical model might seem like an obstacle to adoption, at least for buyers who don’t want to be limited to one brand. In addition, most of today’s OEM programs are offered in limited geographies through limited dealer groups. All the same, some consumers are going for it anyway. Pymnts.com, an analytics firm, predicted in a recent issue of Subscription Commerce Tracker that the car subscriptions market will grow 71 percent by 2022.
Ned Ryan, CEO of Canvas, told Pymnts that car subscriptions cover a middle ground in the vehicle market:
“The two main ways to get into a vehicle today are short-term options, like ride-sharing or renting by the day or hour; and long-term commitments, like leases and loans,” he said. “There isn’t anything in between. We wanted to create a simple and easy way to get into a vehicle somewhere in between those two worlds.”
Turnkey Subscription Solutions
To make the subscription model more accessible to both dealers and customers, startup companies have stepped in with platforms that diversify the model offerings, pricing scheme and terms of service.
Clutch Technologies offers a platform that can automate subscriptions for both OEMs and dealer groups. Clutch is used by BMW’s Access program, and by various dealer groups across the U.S. Clutch provides a turnkey system, with operational applications and tools, a branded mobile app for users, intelligent matching of vehicles with consumers’ needs and preferences, a marketing and sales infrastructure, training, and support.
Flexdrive also sells a platform designed for dealers, and is now operating in Atlanta, Austin, and Philadelphia. Flexdrive includes an app for drivers and a back-end fleet management portal.
Mobiliti offers a solution with subscriptions starting at $450 per month, with inventory currently available in Austin, Detroit, North Jersey, and Central Pennsylvania, and more markets planned very soon. Mobiliti promotes its platform as a fleet-management solution for companies, and as a way that businesses can provide vehicles for their employees. The company claims that, for businesses, its subscription service “is up to 40 percent more cost-effective than other alternatives.”
Flow Automotive, a dealer group representing 20 manufacturers, operates in North Carolina and Virginia. They use Clutch’s platform for their Drive Flow car subscription service. The variety of vehicles available points to the value of adopting an underlying platform capable of drawing on many manufacturers. Flow offers vehicles made by Audi, BMW, Jaguar, Land Rover, VW, Acura, Chevrolet, Volvo, Porsche, and GMC. Right now, Flow operates a subscription plan at its Raleigh and Winston-Salem, North Carolina locations. The company offers a Pioneer membership plan for $1,099 per month and an Adventurer plan for $1,599, with different vehicles available, depending on the plan. Both plans allow 1,200 miles per month and unlimited vehicle flips. Flow says it will soon offer a lower-cost Prospector plan.
What’s the Upside for the Dealer?
Why should an auto dealership move into the subscription space?
This early in the vehicle subscription game, the profit potential for dealers is a moving target. Participating OEM franchisees are tight-lipped about how much they’re making. Matthew Haiken, principal of two New Jersey Volvo dealerships and chairman of Volvo’s Retail Advisory Board, said that some automakers pay dealers between $250 and $500 basically to deliver vehicles. In an interview, Haiken characterized Volvo’s payment as better than those offered by other automakers, but less than the normal margin for a new vehicle sale.
Drury, of Edmunds, told Cantin Automotive Insider said he has heard anecdotally that “profit is not much” for dealers. He also noted that scaling is an issue, “since costs do go up as you add more members, so finding the right balance is tricky.”
Eugene Furman, VP of marketing for Mobiliti, is upbeat about the economic value for dealers using a platform like his.
“Dealerships can make anywhere from $100 to $400 or more per month on a subscription,” he told us, “depending on the make, model, year, depreciation, and how aggressive they want to be on price. The average dealer will make $200 per month, per vehicle. Plus, they will generally realize more benefit on the back end when they retail the vehicle, figuring recovery against depreciation.”
“Car subscriptions won’t destroy current sales and leasing models,” Furman stressed. “Subscription offers an alternative option to a new audience. Modern drivers demand more power and flexibility. These consumers may not be ready for a long-term contract but would still find value in coming to a dealership. The full process is simple and completely transparent, which builds trust.”
“Nobody in our organization believes the sky is falling and that people aren’t going to buy cars in the future,” said John Phelps, VP of strategy for Clutch Technologies, speaking with Cantin Automotive Insider. “Our point is a little broader. Consumers are starting to engage with products and services in new ways. We’re moving toward an access-based economy. Subscriptions are just an alternative channel for offering vehicle ownership in a new way.”
Under sales and leasing models, a consumer might have contact with the auto dealer only once every few years. Car subscriptions could offer a way to deepen customer engagement. “We’re fans of building consumer relationships,” said Phelps. “In today’s environment, the relationship is so episodic. Having interaction with the customer on a monthly or even weekly basis lets you establish loyalty and keep them in your ecosystem.”
Furman agrees with Phelps about the benefits of longer-term engagement.
“Customer lifetime value to a dealership in the subscription model can be three times or more what it is in a traditional retail sale,” he said.