By Sarwant Singh, Senior Partner, Head of Mobility & Visionary Innovation Group

In developed markets like the UK and the US, subscription-based ownership models have already crossed 10% of monthly household incomes. We are now subscribing for literally everything, from mobile phone packages to even shaving blades…Dollar Shave Club, anyone? Not to be outdone, the automotive industry is responding by developing its own unique, customized subscription offerings.

By 2025-26, vehicle subscription programs could account for nearly 10% of all new vehicle sales in the US and Europe. Throw in predictions of over 16 million vehicles being part of vehicle subscription services by 2025, and of 1 in every 5 cars in a subscription offering being new and it’s little surprise that everyone—car manufacturers, automotive dealership groups, car maintenance and repair companies, insurance firms, technology startups, AI companies, lending companies, concierge operators, and, most importantly, customers—are salivating at what appears to be a rich and ever-expanding pie.

Not bad for an automotive retail format that made its high profile debut only a year ago.

Whetting Appetites

It’s hard to provide a definition for vehicle subscription simply because it’s such an embryonic concept. But, at its most basic, it revolves around the notion of “temporary ownership”…a shared mobility service where customers can access a vehicle by the month. In this, it fulfills a long, unmet need since durations of other formats span minutes/hours (carsharing), hours/days (rentals), 2-3 years (leasing), and 3 years to a lifetime (outright purchase).

In addition to being highly flexible, vehicle subscription programs are perceived as being more cost-effective than traditional car leases, rentals, or outright purchases. They seem tailor-made for groups like new immigrants, expats, and millennials who want simple, economical, hassle-free temporary mobility solutions with easy cancellation and return policies. They appear made-to-order for vehicle enthusiasts who are keen on trying out a new car every month, without necessarily burning a hole in their pockets. And, finally, they seem ideal for the average customer who would, one imagines, be pleased to avoid dealing with cumbersome car ownership/rental/lease processes.

It’s in this context that the flat fee charged by vehicle subscription models seems a masterstroke. Not only does the single bill cover the cost of vehicle fees but it also covers registration, warranty, insurance, delivery, maintenance and repair services, and concierge services. I believe this fee will, over time, come to include access to a driver; toll charges; congestion fees; and parking, refueling, and navigation costs.

From this perspective, it’s always a bit of a surprise that it took so long for vehicle subscription to hit the mainstream. What’s not so unexpected is that the high table is already looking very crowded.

It’s A Feast And Everyone’s Invited

In 2017-2018, the vehicle subscription market in North America and Europe had 8 platform/software providers (including Canvas, Flexidrive, and Carma); 12 technology startup-led programs (including YoYo, DriveFlow, and Revolve); 8 luxury car manufacturer programs (including Book by Cadillac, Care by Volvo, and Flexperience by Mercedes-Benz); 7 dealer-led programs (including Drive Germain, Park Place Select, and Lux Car); 7 mobility provider-led programs (including ZipCar Commuter, Maven Reserve, and Lyft All Access), 2 mainstream car manufacturer-led programs (Ford Canvas and Hyundai’s Ioniq Unlimited ), and 1 super luxury car manufacturer-led program (Porsche’s Passport).

This list is interesting because it’s only a partial reflection of the opportunities on offer. In addition to the usual suspects—car manufacturers representing mainstream, luxury, and super luxury segments—their financial services arms (such as Ford Credit) are tapping into new revenue streams while catalysing growth in vehicle subscription. The same holds true for rental companies (Budget, and Hertz), leasing companies (ALD, Alphabet, TEB, and Arval), and shared mobility companies (Lyft, and Maven).

Insurance companies are also part of this exploding ecosystem. Liberty Mutual, Chubb ESIS, Hamilton, and AAA are partnering with car manufacturer-led programs while Assurant is currently a partner for tech company-led programs. Many lending companies—Bank of America’s partnership with Care by Volvo, for example—are also seeing the potential for mutual benefit.

Bring On The Entree

I see three fundamental levels at which vehicle subscription models will generate revenues for the multiple stakeholders in its ecosystem: upstream, midstream, and downstream.

At the top of this food chain, I’d slot in vehicle makers who now sense an opportunity to create a new revenue stream for their cars by making them available through their own subscription programs. The objective here is for them to tap into the product as a service model (XaaS) and capture the lion’s share of a customer’s mobility needs, instead of limiting themselves to a one-time sale.

Several leading car manufacturers have already created distinct brand identities—Canvas by Ford, Book by Cadillac, Care by Volvo, Porsche Passport, and Mercedes-Benz Flexperience, Access by BMW, and, most recently, CarpeDrive by JLR—for their subscription services.

I’d assign automotive dealerships to the midstream. For them, it’s a mouth-watering chance to repeatedly monetize used or new vehicles and, in some cases, maybe even add value by offering allied services like insurance and maintenance. In this digital age where the very existence of dealerships is threatened as car buying migrates to online platforms and smaller boutique stores, this is an opportunity to add value to their archaic business models.

And, finally, I see companies who have not been mobility “players” in the traditional sense—technology startups and companies with AI capabilities, among others—reaping revenues from the downstream services that they offer. These could include software services that determine who can qualify for a particular subscription program; AI services that perform predictive analytics; aggregator services that create common platforms to bring together different target groups and subscription program; and integrated services that enable seamless, end-to-end service support across the vehicle subscription spectrum.

Some Real World Hiccups

While this may seem like an all-round win-win situation, at least on paper, the true test of its appeal and longevity will be how the model performs in the real world. One challenge that I can already foresee is that while, theoretically, customers can drive away in the car of their choice, there is a likelihood that such on-demand availability will not always be possible. A second is that many of these programs are in the pilot stage and limited to only 1 to 4 cities, with more large-scale rollout expected to occur only post 2020. The third constraint is lifestyle related. For instance, I don’t think minivans, vans, and pickups will feature in a subscription lineup anytime soon. Also, it’s debatable whether people who drive electric vehicles and small cars will be willing to trade in their benefits of preferential lane access and easier parking, any time soon.

Nevertheless, there’s a case to be made for used EVs finding their way into the vehicle subscription universe in the near future. For EV manufacturers, it would present an opportunity to boost the utilization rate of EVs, both in premium and mass market categories. And, if backed by concierge services or apps that ensure the EVs are always charged and ready-to-go, then the result could be a match made in subscription heaven. Not least because we are talking of an inventory of 6-7 million used EVs by 2025.

The Final Course

Working on the assumption of a minimum average of $300/vehicle/month for the over 16 million vehicles likely to be in subscription programs by 2025, participants would be looking at an opportunity worth almost $100 billion a year. A delectable idea but punctured by too many variables for it be a certainty. What is exciting for me, however, is that vehicle subscription models meet diverse mobility needs even while opening up the prospect of multiple monetization opportunities across a wide range of stakeholders…from a single car.

Based on a recent study by my team in Frost & Sullivan, I’m going to go out on a limb and make some bold predictions about what the market will look like by 2025 in Europe and North America. First, all mainstream, luxury, and super luxury brands will enter this market. Second, from largely pilot-like projects with limited operations, all major car manufacturer brands will push for full-scale implementation in 10-20 cities even as dealership/technology/insurance company-led programs target a presence in 5-10 cities. Third, fleet sizes will swell from the current average of 100-500 vehicles to more than 1,000 vehicles per program fleet. Fourth, new partners—parking, refueling/recharging providers, and cities—will gain a place in the ecosystem. And lastly, growth in the subscription services market will impact the personal leasing and financing market, pressuring incumbents to revisit and improve their business models.

Early invitees to the feast were Verizon, Netflix, Spotify, and Amazon Prime and now it’s time for newer guests like Canvas, Passport, and Flexperience. Together, they’re serving up the final course: a global, on-demand subscription economy.

This article is based on findings from two soon to be released Frost & Sullivan studies: Future of Vehicle Subscription – Business Models and Opportunities in North America and Europe, 2025 and Design the Winning Vehicle Subscription Business Model for the U.S. and Europe Markets.

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