Car Market Chronicles
Subscriptions May Have Started at the Wrong End of the Market
First services focused on luxury cars but failed. Now, automakers are experimenting at the entry level — and results are promising
- New method is starting to take over and set new standards to car ownership
- Wealthy drivers were the main target at first, but did not enjoy it as expected
- Lately, focus is shifting towards the base and the trend is starting to pick up
Alternatives to buying a car have existed for a long time. Renting is a quick, but expensive solution appropriate for short periods. Leasing is adequate when you plan to keep the car for longer but the option to return it reduces its availability. Car sharing is easy and cheap but is a whole different thing. Now, both rental companies and automakers are investing in yet another category: subscription services.
The simplest way to describe them is by comparing to streaming services: you gain access to a vehicle ready to be driven by paying a fee that depends on the intended distance and duration. That fee covers all expenses but fuel and, in some cases, allows the client to switch from a predefined group of models any time they want — as one would expect, automakers offer their newest and/or most acclaimed ones.
How did those services start?
As usual, automakers favored the luxury categories. Book by Cadillac was one of the first to enable model switching. BMW Access built on that by offering to deliver the car at a specified location. Pivotal took a step further and enabled clients to select from Jaguar and Land Rover, and so on. You had to download the service’s app, go through a background check, set up the payment method and wait for the car to arrive.
While online services always have occasional problems, the biggest one in this case definitely doesn’t depend on the Internet: expensive fees. Companies had to choose between excluding some of the costs like insurance or maintenance or charging enough to discourage potential clients. After all, some may prefer to hire services on their own to get lower prices. None of those were cheaper than US$ 1,000 per month.
Rough start, huh?
Sadly, inevitable as well. There are too many expenses to bundle into one fee, so it is difficult to make it attractive. Makers decided to work on the other end by offering as much as possible: German automakers, for example, made sure to include their convertibles, coupés, and super-sporty versions in the options list. Some have also included extended concièrge support to clean, service and even fuel the cars regularly.
While that did keep people interested, it was still not enough. Besides the high fees haunting clients, dealers were not fond of handling fleets which vary a lot in content and quantity. Most services were dropped one by one over the past months including Mercedes-Benz’s, whose demand was particularly low. One notable exception is Porsche’s service, which is certainly explained for being more emotional than the others.
How could that be explained?
Cars have become parts of our lives. By using them repeatedly and spending a long time in them, we end up having special moments and building memories because of them. That is particularly likely to happen with luxury cars because their customization options make them better prepared to satisfy at emotional levels: attractive design, comfortable seats, modern technologies, powerful engines and efficient service.
Subscription services offer a given range of models from which to choose, set rules for drivers to preserve the cars and make them use the services provided by the automaker. The ownership becomes impersonal, not only expensive, so it is easy to understand that few people embraced the idea. Over time, several automakers decided to try it the opposite way: by offering cheaper car models of generalist brands.
What differences does that imply?
There is a no-frills approach here similar to that of some rental companies: the subscription only covers car-related expenses, leaves fueling to the clients and establishes time and/or mileage limits — not to mention the obligation to stick with one model. Speaking of which, the options list focuses on the best-selling ones from all the company’s brands, which often means compact hatchbacks, sedans and crossovers.
In practice, clients can configure their subscription to make their monthly fees comparable to typical purchase installments. As a result, the service becomes interesting to corporate clients, people who have no time or interest in dealing with ownership details, and those who want to drive a different car every now and then. While that could be considered enough people, it seems that many others are about to join them.
Compact cars: the next target?
A Fiat executive in Latin America believes that entry-level models will become viable only through subscription services. In other words, companies will keep investing in them, but focusing more and more on that channel rather than on traditional sales. In fact, Fiat is already contributing to that by making several compact models available on its Brazilian subscription service, including the best-selling Strada pickup.
The truth is, the global market has been tough on entry-level cars for a while. Buyers look for more equipment, competitors become better and regulations become more restrictive, but no one accepts if their prices rise. The years have made it practically impossible for models such as C1, Kwid and Uno to remain profitable especially when we remember that they necessarily depend on high sales volumes for that.
How can people benefit from that?
Automakers could develop those cars as few customization options as possible to streamline production; rental companies could probably get lower prices or at least better deals; dealerships could dedicate their showroom space to more profitable models; and drivers would be able to cancel the service as soon as they considered necessary instead of getting in trouble with payments of a car they can no longer afford.
Compact cars are usually suitable to young drivers, so automakers could even design special plans tied to student clients in order to reach them even better. In some cases, they could develop other plans focused on professional drivers such as sedans for ride-sharing apps and panel vans for delivery. Having a car would be made simpler and, especially, a little cheaper for people who could use some help to reach it.
The auto industry started using subscription services to provide some freedom to luxury drivers, but ended up getting the initial stages of true approval from the opposite segments of the market. What do you think about all that? Would you consider getting your next car in that way or do you believe the old-school purchase is still the best possibility available? Feel free to share your thoughts and opinions below!
