What is a car subscription business model? The four types and their advantages
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What is a car subscription business model? The four types and their advantages

George Skentzos
September 20, 2022

The automotive landscape has evolved in recent years as a response to the coinciding changes across technology innovation, motorists and vehicle supply market conditions. Players within the market have turned to car subscription as a crossover solution to these three factors; which in doing so has allowed them leverage on new opportunities to future proof their business, launch a new recurring revenue stream and open new customer segments. As key competencies improve and new resources such as dedicated turnkey software solutions become available, the demand for car subscription services has increased globally with players across different mobility services now entering the space.

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What is a car subscription model? 

By definition, a car subscription model is a business model where a business provides a customer the ability to drive  to a vehicle for a recurring fee. This recurring fee can be either weekly, fortnightly or monthly depending on the business’ ability to alter their billing and payment solutions. Unlike traditional rental and leasing services, car subscription allows the subscriber to get access to essential vehicle requirements through their recurring payment - including registration, insurance, servicing and maintenance, warranty and repairs, as well as roadside assistance. For the business providing the car subscription, it is important that they are able to provide the above services in the most seamless way possible. For many, this means establishing partnerships with service providers, for example, providing an integrated insurance solution that allows for quick and easy processing of digital claims. 

Similar to other subscription services, consumers have the flexibility to choose how they want to customise their car subscription by upgrading or downgrading their subscription plan in accordance to changing lifestyle needs or adding on subscription options such as additional driver policies and liability protections designed to offer a more holistic driving experience. 

Depending on specific business objectives as well as its unique product-market fit, the subscription provider has control over the different subscription plans on offer for their subscribers which will see variances in:  

  • The minimum term
  • The establishment fee 
  • The weekly/monthly subscription fee of the vehicle 
  • Cost to swap vehicles 
  • Kilometre usage allowance 
all-inclusive-car-subscription

The four types of car subscription business models 

However, not all car subscriptions are built the same and these differences in models can lead to unique competitive advantages. Depending on their car subscription model, businesses will approach vehicle procurement, fleet management and customer experience differently leading to varying success factors. 

OEM automakers  

Given the cost advantage in vehicle acquisition and the access these players have to customers, OEMs were one of the first to launch the new car subscription model to market. Brands such as Ford, Audi, Volvo and Porsche marketed access to their latest models with an all-inclusive fee as the main value proposition. While this car subscription model provides the advantage of leveraging existing customer segments and loyal brand advocates attracted to the idea of accessing the latest vehicle model, there are a few caveats for OEMs under this car subscription model. These players who have not had any prior experience in operating fleet vehicles and have traditionally outsourced vehicle maintenance and customer support tasks will need to understand the fundamentals of these functions. This includes setting up their fleet composition, optimising vehicle utilisation and the logistics of vehicle pickup and returns as well as the maintenance and servicing of these vehicles - all of which can prove to be a long and costly process without a technology provider. 

In addition to this, OEMs who have been acquainted with one-off vehicle transactions must also focus on maximising the lifetime value of their subscribers by encouraging retention beyond the minimum term. 

Despite these early learning curves, OEMs can still find ways to test the suitability and viability of subscription for their businesses. One way, as exemplified by this OEM, was launching a subscription pilot program through trusted retail car subscription provider, HelloCars where they sought to understand market demand, price position and elasticity of its model line-up; whilst gaining insights into the operational requirements. 

Dealerships 

To mitigate the adoption curve faced by OEMs, dealerships have been introduced as a way to leverage the potential of dealer channel advantages. Here, dealerships have the advantage of offering their inventory and can leverage existing knowledge on remarketing vehicles where they have experience in selling turned-in lease vehicles, used and trade-in vehicles. 

With a segment of existing customers, including those who failed to qualify for finance, dealerships with their brand recognition and excellence in customer success can funnel these customers to car subscription offerings as an alternative. More importantly, dealerships essentially do not need to invest in a website and/or marketing to get started with subscription as they can start by making the most of the leads they already have. As their subscription business begins to scale, dealerships can then take a ‘bricks and clicks approach’ where they maximise their in-showroom opportunity and expand with an online subscription sales strategy.  Dealerships are also in a position to leverage existing relationships within their networks such as service and maintenance operations which can translate to higher operational efficiencies and cost effective practices. 

To learn more about how car subscription can help boost profitability for car dealerships, watch our recent workshop at the 2022 Australian Automotive Dealer Association Convention and Expo, featuring Loopit Co-founder Michael Higgins here.

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The pure subscription provider 

New entrants into the car subscription market have mostly operated under this car subscription model and include the likes of Autonomy and Onto. These businesses are independent startups who position themselves as being digital-first who have developed the technological infrastructure needed to deliver a user-friendly experience where subscribers can browse vehicles and book their car subscription instantly. 

Second to this, these providers due to their lean structure have been prompted to build their customer success teams in-house, translating to a more robust understanding of how to optimise ongoing customer relationships and engagement so as to ensure their retention with their subscription. Despite financial capacity being more limited compared to OEMs and dealerships, pure subscription providers under this car subscription model can take an asset-light approach. The upside of this is that keeping the vehicles off their balance sheet will translate to lower risks associated with the depreciating residual values of vehicles. 

In recent times, pure subscription providers have targeted specific segments by offering niche car subscription services through single categories such as electric vehicles or luxury vehicles. 

Car rental and leasing companies

When it comes to this car subscription model, car rental and leasing companies have three specific advantages according to Loopit Chief Operating Officer Jeremy Gupta:

  1. Experience in managing vehicle logistics including the procurement, maintenance, servicing of vehicles as well as the know-how when it comes to delivering customer experience for pickup and dropoff.
  2. Attracting an audience and customer segment with the ability to quickly manage the movement of vehicles
  3. Delivering a great customer experience that leads to habit and brand loyalty where the digital savviness has lead to seamless rental bookings 

By being familiar with how to provide value to each individual customer at every touchpoint including maintenance, repairs, inspections, insurance, and licensing and registration, car rental and leasing companies are provided with a springboard to get a head start with their car subscription services. 

No matter the business model, launch your car subscription service with Loopit

Loopit is powering the automotive industry with our all-in-one car subscription management platform that is built for modern mobility businesses. Our robust software that encompasses all the features necessary for car subscription has made it easy for the likes of Subaru and SIXT New Zealand to launch and manage their car subscription. Get started today with Loopit and explore the opportunities of car subscription for your business: https://www.loopit.co/get-started 

About the author
George is the Head of Marketing and Customer Experience at Loopit. Having originally started his career as a motoring journalist and founding team member for one of Australia's top automotive startups, George has a strong passion for automotive, business and growth marketing.
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