Momentum Motorcars, a used-vehicle store north of Atlanta, has no body shop, parts counter or service department.
“So a subscription service has given me a stream of recurring revenue that helps me,” Momentum’s owner, James Light, said.
For almost a year, Light has been signing up customers for Flexdrive, a vehicle subscription service started by Cox Automotive and Holman Automotive Enterprises. Light’s longevity in subscriptions has captured many franchised dealers’ attention.
“From what we’ve seen, James has been doing this successfully longer than [almost] any other dealer, franchise or independent,” Chowning Aguilera, Flexdrive’s head of marketing, said in an email to Automotive News. “To that end, the franchises we speak to are clamoring for the opportunity to speak with him and learn from him given the new concept of subscription.”
Holman also offers Flexdrive at three of its dealerships outside Philadelphia and at a location in Austin, Texas.
Light has 180 vehicles in his subscription fleet. Each month, he adds roughly 30 new vehicles and removes about seven that have been driven long enough. The trick, he said, is to use Flexdrive’s data to “predict and outrun” the depreciation on the cars. He generates a profit from the subscription fees in the meantime.
“I bought low-mileage 2- to 3-year-old Audi, BMW, Mercedes-Benz and Lexus vehicles in a down market and put those into our platform,” said Light. “I am able to run them from 20,000 to 40,000 miles. I can manage that depreciation, and it’s helped me to be profitable on the other side of it when I retail out of it.”
For brands with slow rates of depreciation, he will keep those vehicles in the subscription fleet until they hit 70,000 miles, then sell them at wholesale.
Light said he makes a profit of about 7 to 10 percent on the monthly fee and that his cost to launch the program was minimal.
“The biggest expense was getting the space to house the fleet,” Light said. “I bought some property — two acres.”
The monthly fee subscribers pay varies by vehicle. To rent a Smart car costs $400 a month, while a Mercedes-Benz costs $1,300 per month, said Jose Puente, CEO of Flexdrive in Atlanta. Subscribers can swap vehicles mid-month, but most do not, Puente said.
On average, a subscriber stays for 10 months. Light said he has converted many to buyers. Light sells 200 used cars a month at retail and wholesale. Still, he said subscriptions are critical to profits today and in the future.
“There are consumers who don’t want to be strapped into a three-year lease or a 72-month loan,” said Light. “That’s especially true as we go into self-driving cars. If you don’t drive your own car, why do you need to own your own car?”