Cars turn to subscriptions to adapt to the realities of shifting consumer habits
In March 2019, tech journalist Kara Swisher published an op-ed in the New York Times proclaiming that “Owning a Car Will Soon Be as Quaint as Owning a Horse.”
The evidence to support that claim is growing: private car ownership declined globally for the first time in 2018. For more and more people, car ownership is not a daily necessity in the same way that it was for previous generations.
The vehicle subscription model is already well on its way to revolutionizing how customers flip between cars and make payments, all through the convenience of an app. To that now add the retail purchase of vehicles which, by heading online, has also started to become far less traumatic and much more convenient.
A new study by Frost & Sullivan estimates that almost 825,000 new vehicles were sold online globally in 2019, either through online financing or by making a part payment online. By 2025, it is estimated that 6 million vehicles will be sold through online platforms. eCommerce aggregators are driving online vehicle sales in China, while Tesla, ever the disruptor, remains the leader in Europe and North America. Renault leads in South America, while Hyundai is initiating online bookings in India.
Driven primarily by Tesla’s volumes, 66% of online sales today involve making the full payment for the vehicle, online. About 34% of online retailing is fulfilled through a booking fee paid online.
Faced with this paradigm shift, car companies are embracing “usership instead of ownership” to offer subscribers all-in-one subscriptions that include insurance, roadside assistance, maintenance, and the car itself for a monthly fee.
The rise of subscription car services comes at an inflection point for the automotive industry. Cost is one likely factor in the decline: the average price of a new car in the United States hit a record high of $37,401 in 2019. Increased urbanization also plays a role, as more consumers — particularly younger ones — opt to live in metropolitan areas with plentiful alternatives to car ownership.
However, car access continues to have its appeal, and a growing number of car companies are harnessing subscription models to meet that demand.
One of the earliest companies to do this was Zipcar. Founded in 2000, Zipcar allows members to reserve vehicles on demand for $7 per month, plus an hourly rate for each individual drive. Legacy car-rental companies Hertz and Enterprise have also introduced subscription car services as a way to expand beyond their core use case of short-term travel rentals.
Automotive OEMs are also testing out subscription models. Porsche, BMW, Cadillac, Jaguar Land Rover, Mercedes-Benz, and Volvo have all introduced subscription-based models. These programs can offer companies a way to get unsold merchandise off their floors while generating some revenue. Piloting a subscription product can help OEMs fine-tune their business models in anticipation of the arrival of autonomous vehicles, which many in the industry expect to be used in proprietary fleets before they’re used as vehicles for personal ownership.
The takeaway: The shift toward subscriptions in the car industry highlights how a subscription business model can help legacy businesses adapt to the changing habits and preferences of their target market. Consumers aren’t buying cars as frequently, so OEMs are evolving to engage with consumers in a way that works for them.
The automotive industry’s approach to subscriptions also illustrates the power of all-in-one pricing. Virtually all car companies pursuing subscription models offer all-inclusive subscriptions, bundling roadside assistance, maintenance, insurance, and access to the car itself into one monthly payment, and eliminating the need for consumers to manage those components individually through additional vendors.
So whats next? We believe it is the "Ready to share" model, users share their vehicle when not needed "insight Cars are parked 90% of their time" drivers access the vehicles through an app which allows cars to be opened and driven with not need to exchange keys. Everything is guaranteed buy the Long rent contract.
