Car subscription is not a service, it's an ecosystem

Amidst the doubt that remains around car subscription, there is so much value waiting to be unraveled by automakers and car dealers alike. I like to view car subscription as being more than just a service or a business model; and rather as an ecosystem. One that serves and coexists with the future demands of the subscription consumer.

Michael Higgins

Co-Founder, Managing Director

Published on 

October 8, 2021


Last updated on 

October 8, 2021

Key Takeaways

In the past month, the car subscription market has seen two extremes. The first being Volvo Care subscription achieving a strong first-year performance where they delivered 2,500 cars in the UK; accounting for 15% of Volvo’s UK new car retail business. On the other end, US-based Fair announced the end of its subscription offering and instead pivoted towards the marketplace model.

With these two opposing outcomes, it seems plausible for some automakers and automotive industry stakeholders to remain pessimistic toward the growing trend for flexible ownership alternatives. Much of this stems from a primary concern that the growth of car subscription will come at the expense of new car sales. Fixated in the idea that real business value comes from large transactions and long-term purchasers, car dealers show signs of reluctance to the anticipation of new opportunities.

Meeting The Subscription Economy Needs

There is a misconception that subscribers and buyers are one in the same, and a gain in market share in one will detract from the other. However, the reality is far less black and white, and within the shades of grey exists an opportunity to incorporate car subscription into a wider strategic ecosystem within automakers and dealership networks alike. While many are fixated on the fact that customers subscribe because they cannot afford to buy, this is far from the case.

There are many reasons why customers would not be in a position to purchase or otherwise choose to own a car that are completely unrelated to their bank balance.

The reality is that consumers are no longer measuring their automotive needs in years. With the pace of technological development increasing, consumers are beginning to realise that they can derive greater value from car access rather than car ownership. Consumers are now asking themselves, “How long would this car serve me for?” rather than “Is a car really the best way to invest my money?”

With car subscriptions, the desire for flexibility and diversity becomes a reality.  

These behaviours have already been exhibited with other subscription services where consumers are exercising their autonomy and self service. For instance, subscribers who have plans across multiple streaming services like Netflix, Disney Plus and Amazon Prime underpin the shift away from ownership to access. It is becoming a known fact that consumers of the subscription economy are prioritising cost and convenience; thus making them more willing to use car sharing and similar services.

Extending upon this, COVID-19 saw individuals being laid off from their jobs which resulted in difficulties around leasing and/or financing a car especially due to inabilities in meeting payments, ultimately affecting their overall credit score. Along with other factors such as negative equity when trading in a car, I learnt that consumers are looking to protect themselves from uncertainties. Ultimately, avoiding the hidden costs associated with car ownership are equally as important to reaping the subscription benefits of flexibility. Even if that means downgrading or cancelling services, automakers and dealers alike must accept that in providing short term convenience, they can benefit from long-term customer engagement.

Indeed, these hidden costs are often dismissed and this is an area of opportunity for automakers and car dealers to capitalise with all-inclusive subscription services. In fact, many are now making it a prerequisite to include car registration, insurance, servicing and roadside assistance as standard offerings. As such, convenience can be strategically achieved by removing the financial risks associated with a long-term commitment for an asset that depreciates quickly; or the headache of finding a trustworthy mechanic upon service time.

Redefining the assets

Part of this transition will require automakers and car dealers to accept that it is the consumer who is the asset, not the car. Instead of asking the question of “How can I put this driver into this car?”,  the focus should be on “Who would drive this car; and for what purpose?” Here, there is value in just one car serving a range of different customers with varying needs.

The same way automakers and car dealers utilise finance to drive sales, there is opportunity for car subscriptions to have the same strategic impact in the dealership. In 2021, following the first full year of operating its subscription service in the UK, Volvo reported that 91% of customers were entirely new to the brand. This statistic should be seen as an incredible opportunity for automakers and dealerships alike to introduce alternative paths to purchase through car subscription and providing access to an entirely new market segment.

About the author
Michael is the co-founder and managing director at Loopit, a SaaS platform specialising in new mobility initiatives such as car subscription, rideshare and digital rental solutions. When he’s not launching new businesses, Michael enjoys motorsports, racing cars himself as well as boating.
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