Rides on demand: how vehicle subscription services could grow your profitability

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Over the past few years, subscription services of all types have become increasingly popular with today’s consumers. Big names like Netflix and Amazon leverage them to offer optimized, often instantaneous access to their goods. Now, it’s the auto industry’s turn, with the rising popularity of vehicle subscriptions. These programs charge customers a monthly fee to access an exclusive selection of vehicles on demand—but where do individual dealers fit into this? While vehicle subscription programs are primarily run by manufacturers, there’s plenty of opportunity for dealers to adopt their own.

Although the data behind these programs is still limited overall, 34% of consumers surveyed in a recent AutoLoop study said they would either be at least somewhat likely or extremely likely to sign up for a subscription when the time comes to replace their current vehicle. That means dealers have an opportunity right now to spearhead the creation of similar programs at their stores in order to differentiate themselves from competitors––and keep up with ongoing industry changes and customer expectations.

Our survey found a direct––and significant––correlation between age and interest: the younger the respondent, the higher the interest. Over half of both Millennials and Generation Z consumers would consider a vehicle subscription, compared to 37% of Generation X-ers and just 16% of Baby Boomers. This isn’t surprising, since Millennials have grown up in a subscription-based world and are therefore naturally more comfortable utilizing this method for their transportation.

Across all consumer groups, flexibility topped the list of reasons they’d enroll. People like the idea of regularly switching vehicles to accommodate personal and family needs. Younger generations in particular would consider subscriptions due to the peace of mind they believe comes with less commitment when compared to buying or leasing. With that said, not even the prospect of less commitment guarantees Millennials would be willing to pay the high prices currently associated with most subscriptions. In fact, 42% of Millennials said they would only go for a vehicle subscription service if it were less than $500 a month. Since currently available OEM programs are significantly higher––Access by BMW starts at $998/month, Audi Select at $995/month, and Care by Volvo at $750/month––not many existing services accommodate that preference. However, a few programs do provide services for less than $500 per month––Canvas starts at $349/month with a 12-month agreement––but they are currently limited to specific areas of the country. Other programs such as Fair offer low monthly payments based on the selected vehicle, but insurance and additional wear and tear protection aren’t included.

Again, the growth of OEM-created subscriptions paves the way for dealers to provide similar programs at their stores and pick up a share of the profits. However, retailers interested in starting their own subscription plans face a double-sided challenge. First, they need to determine if their region’s demographics would justify creating this type of service. In places with predominantly older clientele, for example, it’s likely to be a niche program with limited participation. Based on our survey, areas with a thriving Millennial demographic would be much more likely to generate interest and attract a critical mass of consumers.

Secondly, dealer-generated subscription solutions will have to accommodate the average consumer’s budget without sacrificing profit. Among other issues, retailers must consider usable inventory, allocation of service resources, insurance partnerships, and program staffing (e.g., concierge services). But dealerships have a key advantage. While manufacturers focus almost exclusively on using subscription programs aimed at getting consumers to drive newer model year vehicles, dealers have the unique opportunity to complement those programs with their own branded offerings that can include both new and certified pre-owned vehicles. This allows them to deliver a lower price-point subscription plan. And with the creation of such sustainable programs, retailers will very likely capture a sizable portion of the profit potential in this emerging business and become leaders of an important industry trend.

Jeff Giere
Strategy Analyst

Return to Sales

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