Anticipating Winners in Car Subscription

As drivers increasingly indicate demand for car “usage” over car ownership, subscription emerges as a viable alternative. With investment flowing from manufacturers, the daily rental and leasing sectors and others, the growth of car subscription in the post-Covid economy will have a meaningful impact on retail automotive.

Car subscription is an emerging product in a mature marketplace making the prediction of winners a function of:

  • More precise definition of the product that will eventually capture a meaningful portion of demand,

  • Identification of those core resources required to cost-effectively deliver the defined product and

  • Identification of the enterprises that already excel in those core resources.

The model that ultimately captures demand may be some form of business combination that features subscription-critical promotional, operational and fleet resources, each delivered by those best able to provide.

What is Car Subscription? – Analogous to mobile phone contracts, car subscription provides customers with the use of a properly maintained and insured vehicle for a proscribed period at a fixed monthly fee with little-to-no-up-front commitment. The product sits firmly between daily rental and the longer-term leasing that has come to dominate new car sales.

While much is made of demand for “mobility as a service” (MaaS) by younger early-adopting “millennials”, car subscription demonstrates broader demand among both traditional car owners and increasingly transient commercial applications.

In promoting car subscription, providers tend to focus on:

Convenience – Customers start their journey via a well-designed eCommerce platform.

  • Simplicity – A monthly “bundled” subscription payment covers the car, maintenance, insurance and roadside assistance.

  • Flexibility – Subscription may either be on a rolling month-to-month arrangement or on a fixed-term of between 3 and 24 months with little-to-no up-front deposit.

  • Customer Experience – The “culture” of subscription consciously distances itself from the traditional car buying experience. Providers, and particularly those focussed on electric vehicles, generally create a membership atmosphere within a “themed” or cause-based community.

A More Precise Product Definition – As illustrated in an earlier article, the larger portion of car subscription demand seems to be for rather conventional cars at around that £500/month “sweet spot”. While customers will pay a premium for flexibility, they’re not likely to accept the roughly 100% premium indicated by Drover’s pricing for month-to-month subscription. Furthermore, customers will likely find that they don’t require month-to-moth flexibility and be attracted to pricing for commitments from as little as 9-12 months that is quite relatable to longer term car leasing.

Who Already Features Required Resources? – As a new product in a mature marketplace, resources required to cost-efficiently provide more precisely-defined car subscription already exist within established enterprises.

OEMs Volvo and JLR lead a group of manufacturers experimenting with direct-to-consumer subscription models. Their offers generally focus on fixed-term or rolling month-to-month access to luxury/performance vehicles at prices in excess of £1,000/month. To some extent, expansion of OEMs into subscription is an extension of their demo and management fleet expertise to “brand fanatics” on a retail basis.

While some experts strongly council manufacturers to expand subscription (and many are), there should arise grave questions as to whether OEMs present the core promotional, operational and even fleet resources required in providing subscription services to the mass market.

eCommerce Start-ups like Drover and Cluno present some of the more interesting models offering subscription of more conventional cars to the mass market. These independent start-ups focus on the “culture” of car subscription by engaging slick eCommerce platforms and customer service focussed on a positive “hassle-free” customer experience.

While subscription start-ups do feature compelling promotional resources, they don’t feature core expertise in the fleet and operational resources required to profitably and sustainably deliver car subscription to the mass market. Drover, Wagonex and others actively seek to outsource fleet supply and certain operational functions to established fleet owners.

The Daily Rental Sector already presents resources that lend themselves directly to the month-to-month form of car subscription including:

  • Best-in-market fleet procurement terms and unparalleled expertise in fleet management,

  • A wide network of convenient locations,

  • Effective rental systems and customer service and

  • Established insurance and “add-on” products.

Rental companies serve the mass market very well. However, their focus on efficient on-airport operations limits their eCommerce focus to reservation booking only with little of the deeper customer “engagement” exhibited in car subscription.

Leasing Companies (including OEMs’ captive consumer finance) also present operational and fleet-related resources that lend themselves particularly well to fixed-term subscription model:

  • Procurement, finance, maintenance and remarketing resources and

  • Operational and underwriting systems and processes designed to serve both consumer and commercial customers.

While these core resources address car subscription, the leasing sector’s promotional resources don’t necessarily lend themselves to the “culture” of subscription. Even lessors focussed more acutely on the consumer market tend to engage third-party brokers to attract customers.

Business Combination – A new product in a mature market, delivery of our more precisely-defined car subscription product requires a key set of core resources. For the mass market, it seems clear that while OEMS, leasing companies and the daily rental sector demonstrate operational and fleet resources, eCommerce start-ups best address subscription’s promotional aspects.

While either party might develop expertise they don’t already demonstrate, the successful structure may well reflect partnership or some business combination tying together the required resources as shown below:

Conclusion – Car subscription demonstrates demand that will support its growth into an important market sector. Those enterprises that will succeed are a function of the relevancy of their core resources to the product and operating model that successful captures demand.

Daily rental companies, leasing companies and OEMs feature operational and fleet resources complimentary to the promotional resources of those eCommerce start-ups developing the more interesting subscription models. The paradigm is not dissimilar to that of the UK’s leasing sector in which successful eCommerce brokers promote lessors’ contract hire products to consumer and commercial customers.

The race is therefore on to define the subscription product/model that best captures demand and to consolidate the resources that most efficiently serve in a rational business combination.