Businesses interested in incorporating a car subscription model ask how much profit they can expect from a new recurring revenue stream. As fleet size varies across dealerships, OEM brands, rental companies and mobility startups, there is no one-size-fits-all approach or number to answer this query. Rather, the adoption of car subscription should be evaluated from using alternative criteria that investigates the model’s practicality as an innovative solution that is defined by its ability to serve the changing demands of modern motorists through a seamless omnichannel experience.
As such, a more appropriate way of assessing whether your business should incorporate car subscription is to use the Desirability-Viability-Feasibility (DVF) Framework that is widely designed to understand whether an “innovative product” can achieve sustainable long-term growth and success. A successful review will help you better understand their customer segment and your pre-existing core product experience - both of which are important in configuring a unique go-to-market strategy that is most appropriate for your brand.
Is car subscription desirable?
Desirability for a product can be measured by the level of market demand. For car subscription, market demand can be proven with the following three sources:
- Changes in motorist behaviour and new demands for affordable and flexible solutions, backed by Loopit consumer survey findings
- Loopit Vehicle Subscription Utilisation Index (VSU)
- Subscription growth across the Loopit network and an increase in new market entrants
Changing motorist behaviour
Following the global pandemic, new work-from-home arrangements and a generational shift in how people are managing their money has led to more individuals considering financially viable alternatives such as car subscription rather than falling for the negative equity trap associated with financing a new car. This has progressively resulted in more individuals realising how car subscription provides flexible and convenient access to a car without the substantial upfront cost of a car purchase, along with the hidden costs of car ownership. This shift is marked by the fact that 91% of early tech adopters claimed that they would consider subscribing to their next car rather than buying it. The shift from ownership to usership is also driven by the new standard for online sales within the automotive retail space resulting in consumers demanding for more digital solutions in their journey towards car ownership; as well as the proliferation of electric vehicles where Loopit found 77% of future EV adopters prefer to subscribe to one rather than buy one.
Behavioural changes are just one side of the shift towards car subscription. Recent market factors have also played a significant role in creating demand, whereby high used car prices and shortage of new cars have accelerated the uptake in subscription offerings. Loopit has experienced such uptake with a 320 per cent spike in new car subscriptions between Q4 of 2021 and the end of Q1 2022. This growth is set to only increase, with many new incumbents entering the market with their own unique value propositions to try to win the race for car subscription. These include the likes of Autonomy who recently made an enormous $1.2 billion EV order, as well Early Uber investor SoftBank announcing its own car subscription service to be launched in Japan.
The Loopit Vehicle Subscription Utilisation Index (VSU) has also given insight into the global consumer interest in car subscription, with the following countries showing significant demand from individuals looking for car subscription providers near them.
Is car subscription viable?
When it comes to assessing product viability, factors such as revenue, customer value and achieving product-market fit through the correct delivery of value propositions are the main considerations. In terms of the viability of car subscription, the new business model is growing fast, with Boston Consulting Group forecasting the market in Europe and the US to reach $30 billion to $40 billion by 2030 - up to 15% of new car sales - based on volume of 5 to 6 million subscription vehicles.
Another point of proof for car subscription viability can be found in the results achieved by some of the world’s leading automotive incumbents and future plans to capture early mover advantages in the changing mobility space.
- Volvo Cars’ subscription service reported that subscription accounted for almost 15% of the brand's new car retail business in its first year of business in the UK. This comfortably exceeded the initial 5% total targeted for the service at the end of its first year.
- Volkswagen Group - Europe’s largest automaker - has offered a massive US$3.4 billion takeover bid for global car rental giant Europcar, in a bid to accelerate its mobility services.
- RCI Bank and Services, the Renault Group’s automotive captive, acquired Spanish car subscription provider Bipi for an estimated US$175 million, to expand its range of flexible all-inclusive products.
- American electric car subscription service Autonomy has ordered 22,790 electric vehicles from 17 different automakers, valued at $1.2 billion
- UK electric car subscription Onto raises $60m to support their European expansion.
- German car subscription provider, FINN reports that sales and number of B2B customers have doubled over the past year, whilst achieving a retention rate of 85 percent in the first half of 2022.
- Mycardirect vehicle subscription business reaches profitability targets 18 months ahead of schedule and has increased its sales by 46% in the past year.
While these headlines herald the monetary potential offered by car subscription, the feasibility extends beyond the financial benefits. For example, if dealerships integrate car subscription appropriately, they will be able to offer an alternative path to purchase and keep customers in their aftersales network - both of which can compound in long-term results such as stronger brand equity and the later attraction of new customer segments.
Is car subscription feasible?
The final part of the DVF framework, feasibility requires businesses to focus on the implementation and execution of their car subscription service. This involves focusing on the end-to-end capabilities needed to deliver a successful car subscription service, including the distribution channels available to communicate the offering to market. Any subscription, big or small, operates on the four following functions:
- Vehicle financing and procurement
- Operations and logistics
- Sales, marketing and subscription management
- Fleet management and disposal
When executing a car subscription, businesses must also have the following considerations in mind:
- Subscription involves more frequent customer touch points for onboarding and transactions
- Subscription involves a higher level of automation and customer self-service
With these considerations, businesses must figure out how to implement a robust system that can solve the additional administration and complexity. While some may resort to building bespoke systems or stitching together separate software modules that can prove timely and costly; there are alternatives such as car subscription management software like Loopit. An all-in-one platform, Loopit is the easiest and fastest way to launch a car subscription service, providing all the necessary end-to-end solutions including:
- TruPass - a full suite of KYC and fraud prevention
- Subscription lifecycle management solution
- Enterprise grade subscription payment technology for recurring billing
- White label functionalities
- Digital point of sale easily installed onto an existing website
- Integrated vehicle telematics and digital claims management
Launch your car subscription with Loopit
Is car subscription part of your business roadmap? Our all-in-one car subscription management platform makes it easy for dealerships, car rental companies, OEM automakers and mobility startups of all sizes to launch your car subscription program that suits your own brand. Get started today with Loopit and explore the opportunities of car subscription for your business: https://www.loopit.co/get-started