In recent years, vehicle subscription models have grown in popularity. Instead of purchasing or leasing a car long-term, consumers pay a monthly fee to have access to a vehicle from a fleet. This approach, known as a car subscription service, offers a flexible alternative to traditional car ownership. The subscription company handles costs such as insurance, maintenance, and roadside assistance. According to Straits Research, the global vehicle subscription market size is expected to reach $33 billion by 2030, growing at a CAGR of 36.5%.
Many within the automotive industry initially feared subscriptions would cannibalize new vehicle sales. The assumption was that consumers would opt for subscription access over purchasing, leading to an overall decline in sales. However, this belief is misguided. Rather than reducing total sales volume, subscriptions actually shift purchases higher up the value chain. The car subscription service business model changes how value is captured in the automotive industry by generating recurring revenue streams and enabling companies to differentiate their offerings through flexible, all-inclusive packages.
For automakers and dealers to adapt, they must focus on fleet partnerships and lifetime customer value rather than one-time consumer sales.
Introduction to Car Subscription Services
Car subscription services are transforming the automotive industry by offering a modern alternative to traditional car ownership. Instead of committing to a single vehicle for years, consumers can now pay a monthly fee to access a car without the hassle of long-term contracts, hefty down payments, or the burdens of maintenance and insurance. This innovative approach is part of the broader subscription economy, which has seen rapid growth in recent years as consumers increasingly value convenience and flexibility over ownership.
Younger generations, in particular, are driving demand for these subscription services, seeking models that fit their dynamic lifestyles and changing needs. Automotive companies have responded by launching a variety of car subscription programs, giving customers the freedom to choose from a diverse fleet of vehicles and switch models as their preferences evolve. As a result, car subscription services are quickly becoming a popular alternative to traditional car ownership, reshaping the way people access vehicles and interact with the automotive industry. This shift not only offers more convenience and less hassle for consumers but also opens up new opportunities for automotive companies to engage customers and remain competitive in a rapidly changing market.
How Subscription Services Work
Car subscription services operate on a simple yet powerful premise: for a single monthly fee, subscribers gain access to a vehicle along with a suite of bundled benefits. This fee typically covers insurance, roadside assistance, and all routine maintenance, eliminating many of the hidden costs and headaches associated with car ownership. Customers can select from a range of vehicles and subscription plans, with some services allowing them to swap vehicles as their needs change—whether it’s upgrading to an SUV for a weekend getaway or switching to an electric vehicle for daily commuting.
Unlike traditional leasing, car subscription models offer unmatched flexibility. Subscribers aren’t locked into long-term commitments and can change cars or cancel their subscription with minimal notice. Many services also provide unlimited mileage, so customers don’t have to worry about overage fees. Additional features such as heated seats, advanced navigation systems, and premium sound systems are often included, enhancing the overall driving experience.
Leading automotive companies have launched their own car subscription services to meet this growing demand. Programs like Porsche Passport, Care by Volvo, and Tesla’s vehicle subscription service are setting new standards for convenience and customer satisfaction. By offering a flexible, hassle-free alternative to car ownership, these subscription services are not only attracting new customers but also creating new revenue streams for the automotive industry. As the market continues to evolve, car subscription services are poised to remain a competitive force, redefining what it means to drive and own a car in the modern era.
How Car Subscriptions Impact New Car Sales
With a vehicle subscription model, consumers no longer purchase vehicles but rather subscribe them for a recurring fee that includes other on-road costs such as insurance, registration and maintenance, without any long-term commitment. The experience for the customer otherwise remains analogous to more traditional car ownership.
Instead, the purchases of new cars are made by car rental companies and dealerships, who have increasingly adopted subscription models to offer flexible alternatives to traditional car ownership. These car rental companies supply vehicles from their fleets to end consumers on a subscription basis. Unlike other mobility options, like car sharing and ride sharing where customers use a vehicle on a temporary basis, under a subscription model there is no net loss in the number of vehicles required to serve a given market.
In this way, total vehicle sales volume does not decrease under subscriptions, but rather the profile of purchasers changes.
Fleet management companies, car rental companies, and auto dealerships take on the role of purchasing vehicles in bulk to supply their subscription fleets. The overall sales volumes remain steady for automakers, but the customer profile shifts from individual consumers to institutional fleet buyers.
This means that rather than trying to sell one car at a time to individual households, automakers can now focus on larger, higher volume institutional purchases while still maintaining stable sales totals.
Impacts on Automakers
The growth of vehicle subscription models requires automakers to increase their focus to institutional buyers as well as consumers. Rather than marketing and selling directly to individual car buyers, automakers must develop programs and incentives in parallel aimed at leasing companies, rental car fleets, dealer groups, and other high-volume purchasers.
This is certainly not unchartered territory for automakers who regularly negotiate volume orders for fleet buyers. The difference, however, lies in the types of vehicles these institutional buyers need, the extent and speed of delivery, and the customization they may require. In the traditional model, fleet buyers often purchase a specific set of vehicle models, with limited customization.
While traditional fleet sales typically involve limited customization, vehicle subscription models could require a much higher level of customization to meet end-user preferences. This might range from specific vehicle features, trim packages, technological add-ons, and even personalized branding for corporate subscribers. Automakers may also leverage their brand reputation or offer access to specific brands within their subscription programs, allowing corporate clients to align with luxury or premium brands that reflect their company image. Automakers need to figure out a way to offer such personalization at scale without disrupting their mass manufacturing model.
Lastly, in a vehicle subscription model, after-sales service plays a major role because it is a part of the package that end-users subscribe to. This implies extra responsibilities for automakers to maintain and service vehicles on an ongoing basis. This demands not only a robust after-sales service infrastructure but also a broader shift in automaker’s business models towards service-centric rather than product-centric models.
Impacts on Dealerships
With vehicle subscriptions, in addition to selling directly to consumers, the role of dealerships extends to supplying vehicles for subscription fleets. Individual dealers and dealer groups purchase vehicles in bulk to provide inventory for subscriptions.
This means dealers must focus more on high-volume fleet sales and actively managing their inventory. According to research, dealers may need to carry up to 30% more inventory to support subscriptions while still maintaining adequate new car availability for regular buyers.
Dealerships also require expertise in remarketing and understanding residual values. When a subscribed vehicle comes off lease, the dealer must determine the best strategy for remarketing - either placing it into another subscription fleet, selling at auction, or retailing.
In addition, dealers must manage fluctuating demand. As subscriber numbers increase or decrease month to month, inventory levels must align. This requires close coordination with fleet buyers.
Importance of Lifetime Value
In a subscription-based model, one-time vehicle sales become less important than building ongoing relationships and maximizing the lifetime value of each subscriber. Rather than focusing solely on individual sales transactions, automakers and dealers need to retain customers and generate recurring revenue through subscriptions.
Therefore, customer loyalty programs, incentives, and perks become critical for maintaining a loyal subscriber base. These types of programs encourage subscribers to continue their memberships month after month rather than churning. They help maximize the total lifetime revenue from each subscriber.
Key performance indicators and sales metrics need to shift as well. Sales volume and profit per unit sold are less relevant. More important metrics are monthly recurring revenue, subscriber acquisition cost, customer lifetime value, and subscriber retention rate. Automakers and dealerships must track their success based on the long-term relationships they build rather than one-time sales.
By focusing on subscriber loyalty and lifetime value, automakers and dealers can thrive in a subscription-based market. Recurring subscriptions provide more predictable and stable revenue than individual sales. This allows businesses to better forecast, plan, and invest for the future.
Fleet Sales Incentives
Automakers offer a variety of incentives and discounts to encourage fleet purchases from rental car companies, leasing firms, and other commercial buyers. These incentives help automakers maintain consistent sales volumes even as consumer purchases decrease. Some common fleet sales incentives include:
Volume discounts and rebates
Bulk buyers can earn significant per-vehicle discounts, cash rebates, and bonus programs based on purchase volume.
Fleet-specific packages
Models can be configured with standard equipment and options optimized for commercial use, like durable cloth seats.
Dedicated sales process
Automakers have specialized fleet sales teams focused on high-volume institutional buyers. The sales process is tailored for multi-vehicle orders, with expedited quotes, factory ordering, and tracking.
These incentives encourage major purchases from fleet operators, sustaining sales volumes for automakers as consumer transactions decline due to subscriptions. Automakers have significant expertise in managing high-volume fleet sales.
Importance of Customer Lifetime Value
With vehicle subscriptions, the importance shifts from one-time sales to retaining and maximizing the value of subscribers over their lifetime. This makes implementing customer loyalty and incentive programs critical.
Some ways for automakers and dealerships to boost loyalty and lifetime value of subscribers include:
Subscription loyalty incentives
Special rewards, discounts or package upgrades for long-term subscribers.
Retaining high-value subscribers
Identify and provide personalized perks to prevent cancellation by big spenders.
Personalization and custom offers
Use data analytics to send targeted, customized deals to individual subscribers.
Tiered subscription packages
Offer varying levels of packages and benefits to appeal to diverse needs.
The key focus must be providing ongoing value and incentives to subscribers, as their lifetime value becomes more important than one-time vehicle sales in a subscription model.
Conclusion
In summary, vehicle subscriptions do not reduce overall automotive sales volumes, but rather change the profile of vehicle purchasers. Many car subscription programs now include a wide range of different vehicles and comprehensive services, giving consumers access to a variety of models and bundled benefits. While consumers no longer buy cars directly in a subscription model, purchases are still made in aggregate by leasing firms, rental car companies, and dealers to supply their subscription fleets. Total vehicle sales remain constant even as the purchasing entities shift further up the automotive value chain.
This evolution requires automakers and dealers to adapt their sales processes to serve fleet operator and institutional buyers, rather than individual car shoppers. Capturing lifetime customer value through ongoing subscription revenue becomes more important than one-time vehicle sales. This opens up opportunities for automotive companies to develop new business models centered on building loyalty, maximizing subscriber retention, and crafting incentives for their evolving customer base. Many subscription services offer bundled features such as insurance, maintenance, and other services, making the experience more convenient and attractive for customers.
Rather than reducing sales, vehicle subscriptions create the impetus for automakers and dealers to rethink how they capture value. Unlike traditional car buying or leasing, subscription models often eliminate the need for a down payment and include insurance costs in the monthly fee, providing greater financial flexibility for consumers. Subscriptions also offer more flexibility, allowing users to switch between different vehicles—including electric vehicles and popular options like the Tesla Model—according to their needs and preferences. Those who successfully transition to serving fleet partners and maximize subscriber lifetime value will thrive in the emerging subscription-based automotive economy.
As highlighted by CBT News, these subscription models and their comprehensive offerings are shaping the future of the automotive market and influencing how industry players manage inventory and adapt to changing consumer demands.
