Manufacturers have been searching for business models other than automobile sales to diversify their profit pools for many years. When it comes to transportation, pay-as-you-go models like vehicle sharing, ride-hailing, and other forms of transportation have grown increasingly widespread. Short-term rental (not necessarily inexpensive) and leasing are the only options to outright ownership. Having seen the emergence of subscription services like Spotify and Netflix, it was only a matter of time until car subscriptions platform were introduced.
OEMs have been giving vehicle subscriptions for several years at this point. As business models continue to change and an increasing number of suppliers refine their formulae for competing, the sector has recently started to gain momentum with consumers and investors. Car subscriptions might become a $30 billion to $40 billion industry in the next decade. There has been a lack of success for many OEMs, although entrepreneurs in Europe have done well. In light of these findings, does the automobile industry have to give up on vehicle subscriptions altogether? It might be that the business model issues have yet to be ironed out. If automobile subscriptions thrive in the auto retail business, what resources, competencies, and strategy would it take? What advantages do the various service providers stand to gain from this?
At a Glance: Car Subscriptions
Several startups have entered the subscription market in Europe and the United States, along with OEMs and other stakeholders, such as conventional rental and leasing organisations. Until now, Europe has been the most lucrative market. There is still a steady stream of venture capital funding. Amsterdam-based micro-mobility firm Swapfiets suggests that the subscription model has legs in the transportation sphere. In Europe, this pioneer in the field of mobility subscriptions provides programmes for bikes, scooters, mopeds, and electric bikes.
How Subscriptions are Created and Managed
Leasing, in particular, may be difficult to distinguish from subscriptions, which have many of the same qualities. (Also see “Subscriptions Versus Rentals and Leasing”). Maintenance, repairs, roadside assistance, registration fees, insurance and taxes are all included in the monthly amount that the customer pays for the automobile. Commitment periods range from a few months to a few years, depending on the length of the contract. The smaller the monthly charge, the more time you put into the contract.
SUBSCRIPTIONS of Rentals vs Leases
As compared to buying a car, vehicle subscriptions provide convenience, flexibility, and minimum commitment to the user, making them an enticing alternative. Buying a vehicle is a significant investment, but customers may avoid the upfront expenditures and the additional costs that come with owning one. (Although there are programmes that charge a one-time enrolment cost.) Because individuals tend to underestimate the entire cost of owning a vehicle, this is a crucial selling element. People underestimate the entire cost of owning a vehicle by more than half, according to a poll of 7,000 German families. A Car subscriptions platform also reduce the time-consuming and paperwork-heavy procedure of purchasing a product or service. It’s unnecessary for customers to be concerned about routine maintenance, inspections, locating a reputable repair, or purchasing tyres. When it comes to checking out a new brand or kind (such as an EV), subscriptions reduce the danger of a long-term commitment for an asset that depreciates swiftly more than typical leases.
Subscriber offers don’t fall into any one category. Some companies provide a wide variety of brands, models, and kinds of automobiles to choose from. OEM subsidiaries, on the other hand, only carry one or two brands. Some focus on a certain kind of vehicle: luxury or mass market, ICE or battery electric automobiles (BEV). It is possible to switch an SUV into a convertible at no additional expense, such as Porsche Drive, which allows consumers to do so as the weather becomes warmer. The evolution of subscription models has been significant throughout their short existence. There is no demand for the high-priced, single-brand product (often supplied by OEMs) that promised to transfer automobiles. At least in Australia, a new model is succeeding, one that resembles full-service leasing.
THREE MYTHS ABOUT CAR RENTAL SERVICES
We’ve uncovered a few misunderstandings concerning automobile subscriptions that both existing and aspiring industry players should be aware of.
- One of the most common misconceptions is that consumers desire to buy and sell cars on an ongoing basis. Customers only identify switching as a factor in their decision to acquire a subscription in one in four cases. Affordability and cost transparency is much more significant than any other consideration. In addition, the shifting function and its accompanying expenses push up the price.
- Secondly, subscriptions are prohibitively pricey. All-inclusive monthly payments start at €199 for various automobiles. As a result of swapping-type models, there is a notion that high costs are associated with them.
- Customers prefer month-to-month subscriptions, but this is not always the case. Customers choose a lower price over premium features and services by an overwhelming margin when it comes to month-to-month subscriptions. When it comes to mobility, many customers see it as a commodity. There is a lack of interest in month-to-month memberships, which may be terminated at any moment. For the time being, they are mainly being offered as a marketing tool by carriers.