Dealer-based Car Subscription

Retail automotive is in a period of chaotic disruption. OEMs indicate their intention to adopt an omni-channel distribution strategy. Virtual and terrestrial superstores revolutionise the used car buying experience. Electric, connected and autonomous technologies change the very nature of the car and alternative mobility models change the way in which we access them.

To thrive in this disrupted sector, proactive businesses will need to re-evaluate whether or not their investors' capital is optimally deployed to capture opportunity.

While OEMs will sacrifice the traditional wholesale/retail structure for an agency paradigm, those former franchisees still retain well-established human and other resources for garnering fee-based services without the burden of inventory risk.

Part of the mobility-as-a-service economy "MaaS", car subscription provides dealer groups with an opportunity to lever their existing resources in:

  • Earning additional revenue from existing stock,

  • Securing valuable used car inventory and

  • Preserving capital within a strict regulatory framework.

Grace Automotive can help franchised and independent dealer groups explore the viability of car subscription within their broader product offering. We bring clarity to a disrupted retail automotive sector helping managers take better-informed and more impactful decisions.

Defining the Car Subscription Product as a Function of Demand

The uptake of car subscription suffers from lack of clear product definition. Is it a long-term rental or a short-term lease? More than just semantics, the definition of car subscription describes core resources required to deliver.

Consultancy Oliver Wyman identifies two opposing pools of subscription demand. While some luxury OEMs have staked out a "brand-fanatic" product at more than £1,500/month, the greater opportunity exists at that roughly £500/month level.

Management of Cazoo/Drover have indicated that their average subscription term hovers around 13 months and a glance at their market pricing provides insight.

For a commitment term of 9-12 months, customers secure a monthly cost comparable to that of much longer-term lease products.

While customers will pay a premium for flexibility, it's unlikely they'll tolerate the nearly 100% premium over monthly lease cost for month-to-month flexibility they ultimately don't need. Therefore, definition of the form of car subscription that captures the greatest opportunity includes:

Who Should Supply this More Precisely-defined Car Subscription

An emerging product in a mature retail automotive sector, car subscription requires promotional, operational and fleet-related resources that are already endemic in established players. Those resources can be more clearly-defined as follows:

  • Promotional Resources include eCommerce, customer experience, marketing & sales. Rather than simply attracting customers to a product or platform, the more successful subscription providers create a "membership environment" providing an enhanced customer experience generating long-lived loyalty.

  • Operational Resources - includes logistics, customer service and administration & compliance. Subscription providers focus on providing the customer experience that satisfies demand while retaining economic viability.

  • Fleet-related Resources - includes new and used vehicle procurement, remarketing, refurbishment and service. At heart, subscription (and all of the retail automotive segment really) is about getting the right vehicle in position at the right price.

In general, OEMs don't yet demonstrate expertise in those key resources required in the provision of car subscription. While leasing companies and the daily rental sector demonstrate a certain capability, it is arguably the former franchised dealer groups that feature both the broadest array of required resources and the critical mandate to re-evaluate resource deployment.

Ultimately, the successful model may well include engagement, acquisition or partnership among dealer groups, daily rental & leasing companies, fleet managers and subscription start-ups.

Subscription Pricing - Proof

Monthly pricing for car subscription is largely defined by the vehicle's underlying market de-valuation curve. As the pace of de-valuation slows over time, successively longer commitments translate into more economical monthly payments.

The analysis at left reflects market-observed monthly costs (unmaintained and uninsured) of brand-new cars with successively longer commitment terms. The residual expectations built in to each offer forms an anticipated "trade curve" shown in red.

Cazoo's price for a 24-month subscription (again, adjusted for insurance and maintenance) sits alongside the market lease quote and their price for an 18-month commitment sits neatly between the 12 and 24-month prices.

Monthly Cost of Nearly-new and Used Subscription

In retail-ready condition, nearly-new and used cars compare quite favourably with their brand-new counterparts. However, by taking nearly-new or used, customers can secure significant savings in their monthly payment.

The image at right indicates the cost of 12-month fixed-term subscriptions (before insurance) for successively older versions of the Mercedes A180 hatchback. Rentals are derived from retail and trade curves reflected in the analysis above and service costs are derived from FleetPoint's "whole life cost calculator".

Because the pace of market de-valuation slows faster than service costs expand, customers save over 40% by choosing a 24-month old car over the comparable brand-new alternative.

None of the established car subscription providers currently offer nearly-new or used vehicles. The product can directly address our re-defined product description (i.e. fixed-term arrangement for conventional cars at a relatable price) and dealer groups arguably feature the best resources for vehicle "care" required to get nearly-new and used cars into position at the most cost-effective price.


The transition to omni-channel agent will significantly disrupt the franchised dealer paradigm. Boards of directors will be compelled to re-evaluate capital and resource deployment to ensure they are best-placed to exploit opportunity.

The provision of new, nearly-new and used car subscription products is just such an opportunity.

Dealer groups already feature key operational and fleet-related resources lending themselves to car subscription. While reinforcement is likely required in car "care", consumer/fleet finance and other key functions, dealer groups could secure promotional resources through development, engagement or acquisition.

Grace Automotive can help dealer groups explore their viability in the provision of subscription services for new, nearly-new and used cars. We find clarity in chaos helping business leaders take more well-informed and impactful decisions.