There is a broad spectrum of customers who are interested in the subscription business model. The present toddlers who are not interested in owning a vehicle in the future will corrupt the purchasing market. Furthermore, the adults in the present situation would like to change their drive every year or two, and so owning a car becomes a bit more expensive option. More people are planning to move towards a subscription platform. The most important group of customers will be the one with a credit rating from 500 to 600, also called non-prime credit customers. The rate for these customers to acquire or own a vehicle is fairly high because of the low credit score. According to Automo analysis, most of the people who are willing to shift from standard auto loans to subscription-based models are the non-prime credit customers with a low credit score. These people are on the verge of building their credit score back to normal. For these customers, the best option is subscription until their score jumps to a historical high. The other group of customers is the first time car users, that is, the subset of the non-prime credit customer. The first-time credit taker is also one of the most important subsets because of the low or damaged credit score.
The subscription model runs in different ways. Companies, such as Fair, own the vehicle whenever it is lent out on subscription. In the other model, the dealer maintains the vehicle ownership. The other model is run by OEMs, where the manufacturers owns the vehicle or the fleet company that manufacturers the set up before giving it out on subscription. There are certain programs by the OEMs such as the Porsche Passport, the Cadillac Book, and Volvo Care. The companies are opting for different ways to attain the same objective.
Mobiliti, a subscription provider company, has developed a portal for subscription, but the company also offers different services such as traditional lease and complete purchase of the vehicle. The company is a one-stop shop for browsing and trading the vehicle.
In the medium to long term, OEMs or car manufacturers will continue to challenge the franchise owners and will also act as the direct competition for the dealers. In the short term, OEMs are expected to work hand in hand with the subscription program providers and dealers. But in the future, with more connected cars and autonomous vehicles, the war will be fought on data access and ownership between the dealers and OEMs. This will further make the OEMs as the direct line in competition with the franchise owners and subscription providers. Thus, there is a need to build a new model where everyone can get a share of the profit and the data shared as per the government regulations. In the short term, manufacturers need to push the subscription programs through the dealer networks. The OEMs need to get their dealers involved, and explain to them about the pitfalls and benefits of the program. This will further make them excited about the new business model. For the car manufacturers, minimizing the downtime of every vehicle is the primary objective, so subscription is the new smart for the OEMs.
There is a burgeoning demand for subscription based products in the market. The viable way forward is to make dealers, customers and fleet providers understand that subscription is the winner in the long term. Approximately 16 million vehicles will opt for one subscription program or the other by 2025. This will further present a market with an opportunity of approximately $100 billion/year. Before getting there, the most important questions that needs to be answered are: Who will be the target audience? What will be the outcome of a fight between dealers and subscription providers?
It has been observed in the past that on an average, the vehicle is being flipped once in every four months, that is, the partial owner of the vehicle replaces the old vehicle with the new one in approximately six months. This offers considerable benefits to the subscription service provider as it receives the recurring income from the same customer and the vehicle can be hitched to another customer. This further increases the customer base and revenue. There is really a need to come up with a price model where the vehicle subscriber can easily see a difference between offers and the vehicles. This will provide a broad perspective for the business where the same subscription program will be able to provide trucks and passenger vehicles and the user will be able to calculate the price difference with ease.
The subscription company that wants to win in the future should keep the platform in the picture. The platform will excite customer interest similar to what happened with Uber. But there is a lot of costs involved, from bringing the dealer to the network to marketing. Furthermore, this model is difficult to work with because it requires a huge customer base. So, running a platform and subscription company is a tough business model, but the company who opts for this model is expected to enjoy success in the short term.
There is a need to deploy a win-win philosophy, where fleet providers, dealers, subscriptions service providers, and customers should be able to see the value. The subscription providers should always be ready to do small tweaks with the business model, which will help ensure that the economics works with ease for everyone. Automo’s recommendation would be to constantly evolve the business model and not be reluctant to change the model as per the operational economics. It is also crucial to get the hang of all the operational issues that a subscription model can pose.