January 24, 2018 — Over the last several months, numerous automakers and dealers have launched flexible ownership models creating a new means of interacting with customers beyond the typical loan or lease. The question is whether flexible ownership and vehicle subscriptions will move beyond being a novel and cool idea to becoming an accepted method of “vehicle ownership.”
Each model varies, but the core idea is to allow customers to use a mobile app to pay a monthly subscription fee (most of which includes insurance, maintenance, concierge pick-up and drop off and access to multiple vehicles in a given fleet). The models are so new, they’re only available in certain cities. But they are expanding while new initiatives are being launched.
A key point to understand is that these subscription models are much more than just a mobile app designed to create a friendlier customer experience. For a subscription model to be legitimate, it needs to be a full-scale fleet or asset-based management solution. And that requires a robust technology platform that ties together the economics of fleet management including residual value analysis, customer experience and the use of artificial or predictive intelligence. Despite the gltizy headlines, though, much of the automation required still needs to be build. Some of the programs still rely heavily on manual entry.
The underrated potential of vehicle subscription models is the opportunity to make fleet operations more efficient while creating a new profit stream from vehicles that typically have sat on the lot for 60 to 90 days. Instead of costing money, these vehicles can be making money.
For that to happen, the industry is going to have to begin looking at residual values with a new lens. We may end up having to rewrite how residual values are determined. Furthermore, OEMs are going to have to rewrite some of the policies governing loaner use and how inventory is classified. In other words, we still have a lot to learn about the viability of these models.
These initiatives raise at least four questions which should start being answered within the next year.
- Will customers make use of them? While there are attractive aspects for customers (access to multiple vehicles, one payment bundling vehicle, insurance, maintenance) it may end up being a hard sell because of the economics.
- What sort of impact will they have on a dealer’s profitability (specifically in F&I)?
- If the concept takes off and becomes popular, what will it do to the current residual value formulas?
- Who is best at administering or owning the vehicle subscription model? OEMs or dealers?
Over the next year, the industry will see more dealer and OEM-related launches, but it will also see subscription-based models that circumvent the typical players. It’s likely rental car companies, and possibly banks who lease vehicles may also get in the game.
Spireon, during this year’s Consumer Electronics Show in Las Vegas, showed off its concept of a vehicle subscription model branded as Drive On Demand. Spireon intends to explore a joint development of a solution around this concept with dealership customers in 2018. CORRECTION: (In an earlier version, TBR incorrectly reported Spireon intended to beta test it’s solution later this year).
Banks and leasing companies have indicated they are watching the initiatives closely because they could represent a threat. People participating in monthly subscriptions aren’t financing or leasing vehicles. So far, Bank of America is getting into the game financing Volvo’s “subscription” program customers — but, it’s questionable whether Care by Volvo is an actual subscription model (see our discussion of Volvo’s program below).
Several OEMs have launched programs in the last year (and some earlier).
- Audi on Demand began the trend began in 2014. We reported then that Audi was the first automaker to begin developing a subscription-based model in the U.S. But the idea was so new, even Audi’s communication team in the U.S. was unaware of the pending program at the time (several months before launch). The program is a high level rental program and less of a subscription model. It launched quietly and still is only available in San Francisco.
- Book by Cadillac charges $1,800 a month for 18 vehicle swaps over a 12 month period. concierge services, insurance, maintenance, OnStar, Sirius XM, 4G LTE, and state and local taxes. Currently, it’s available in New York, Dallas and Los Angeles. As of now, the program does not involve Cadillac’s dealers.
- Porsche’s Passport program launched late last year and is available only in the Atlanta metro area for now. It’s powered by Clutch Technologies (more info below in the Dealer Program section). The program has two levels — Launch for $2,000 and Accelerate for $3,000. Subscribers have unlimited vehicle flips and miles. Subscriptions also cover concierge services, roadside assistance, maintenance, insurance and state and local taxes.
- Care by Volvo is different than Cadillac’s and Porsche’s programs. And calling it a subscription service is questionable, even though, that’s how Volvo is positioning it. It’s really a premium lease program. Customers can sign up for 24 months by paying a $500 set up fee and then paying a $600 monthly fee for a Volvo XC40 T5 AWD. For a $100 more, subscribers receive a higher level sound system, bending lights and a 360 degree camera. Subscribers can switch to new vehicle after 12 months (there are no vehicle swaps) and are limited to 15,000 miles. Overall, it’s an underwhelming program when compared to other subscription programs (not to mention, customers have to go to the dealership to pick up the vehicle). Bank of America is providing the financing.
- Drive Canvas, Ford’s program (Ford Credit acquired Breeze in 2016 and re-branded it as Canvas) is operating in Los Angeles and San Francisco. It’s focused on pre-owned vehicles. The vehicles are three years old. Insurance, roadside assistance, maintenance and warranty are part of the package. There is a one-time $99 activation fee with monthly payments based on the vehicle and mileage package selected.
- Lincoln is launching a beta test of a subscription service (using Canvas technology) early this year.
- Mercedes Benz announced during the Detroit Auto Show it will begin piloting a subscription program later this year.
- BMW is also considering a pilot later this year.
OEMs are making the case to their dealer networks that these initiatives are longer term test drives for potential customers and helps expose the market to their brands. Their challenge is that they are limited to their own brands, whereas dealers can offer multiple vehicles from all of the brands they sell.
In addition to the OEM specific programs, dealers are starting to launch their own programs.
In 2014, Cox began working on its Flexdrive initiative under the leadership of Jose Puente. Today, Flexdrive is a joint venture between Holman Enterprises (one of the largest dealer groups in the country) and Cox Automotive. It’s currently available in Atlanta, Philadelphia and Austin.
Flexdrive also partnered with company in Denmark in 2017 offering a new vehicle solution branded as “Drive.” This year, Flexdrive plans to add another 20 dealers to its fleet management platform along with a soon to be announced non-dealer partnership that will bring Flexdrive to another 24 U.S.-based markets this year, Puente told attendees at the TBR AUTOVATE 2017 conference held in Austin, TX in December.
Flexdrive charges customers a weekly subscription based on the vehicle they select and their market. Customers can sign up for either a seven-day term or 28-day term. A one-time $250 refundable deposit may be required also depending on the market.
Clutch Technologies, which also is a Cox Enterprises investment, is rolling out its program allowing dealers to white label its solution (Porsche is also using Clutch for its Passport program). In the last year, five dealer groups have launched their own programs (four since November). All of the dealer programs so far include unlimited flips, insurance, maintenance, roadside assistance and concierge services. For now, most of the programs offer two levels – -a mid-tier level and a premium level. It’s likely a third, lower tier level will be part of Clutch’s program in the near future.
- Don Flow Automotive in North Carolina and Virginia– DriveFlow (in 2016). Flow rolled out its program to 100 initial customers in the first year, managing director Matt Hinson told attendees at TBR AUTOVATE 2017 . The initiative broke even its first year and is now being made available to another 100 customers. Pricing includes a one-time $250 activation fee; and two tiers — one at $850 month and a premier tier at $1,499 a month.
- Warren Henry Automotive in Florida — FlexWheels saw 95 people sign up in the first month. The program is a subset of FlexMotors, an integrated mobility services platform Warren Henry is building. The activation fee is $700 with two levels of monthly subscriptions — one at $1,799 and one at $2,099.
- Germain Automotive in Columbus, OH — Drive Germain launched earlier this month. It’s activation fee is $500 with two monthly subscriptions — $1,000 and $1,400.
- H&H Automotive (Hinchliffe) in Omaha, NE — Luxe.Car’s activation fee is $575 and it offers two levels — one at $975 and a second at $1,595.
- Jeff Wyler Automotive Family in Cincinnati, OH — Wyler FastLane launched this month. The activation fee is $500 with two levels — $950 and $1,500.
We know of several more that will launch this year.
Another take on the “vehicle subscription” market is Scott Painter’s newest venture called Fair. It’s more a short-term (no long term contracts or loans) used vehicle leasing concept in which the customer signs up for a monthly subscription. They can turn the vehicle in at any time. The company recently announced a $1 billion capital raise — coming from debt equity and private investment. We hear more investment announcements may be coming. Fair also recently acquired the assets of Uber’s failed leasing initiative. Look for Fair to do more on the ride sharing front this year.
One other key point for dealers is the potential for a vehicle subscription program to create 100% customer retention in the service department for the vehicles included in the subscription program. That is profit right to the bottom line.
The question for dealers is, when to get into the game — and more importantly, should they? The six dealer groups that have already launched their programs are visionaries with significant capital and historically have been willing to experiment with new ideas. They make smart bets, but being on the cutting edge is in their DNA.
TBR recently talked with another large group that’s also historically led the charge with new technology and solutions that, after closely studying the concept, doesn’t believe subscription models pencil for the dealer.
The point is, the jury is still out.
Despite that, well-capitalized dealers should begin studying the concept now because the customer ultimately will determine whether it makes sense. And this is an idea that could take off.