Weighing pros and cons of vehicle subscriptions – Part IV

Stephane Ferri is head of strategic development at Flexdrive, a car subscription services provider and a joint venture between Cox Automotive and ARI.

But his background includes a dozen years at Asbury Automotive Group.

So, when it comes to the vehicle subscription space in which Flexdrive operates, “I’m always going to think of it as a retailer first,” he said in a September phone interview.

In fact, Ferri was on his way to visit two dealer principals when he caught up with Auto Remarketing.

“I’ve had the privilege of knowing many dealer principals through my years, and when we speak to many dealer principals … I would tell them the same thing I would tell you if you were a dealer principal,” Ferri said.

“I wouldn’t want you to put your first car in (to a subscription program) unless you knew that you were going to make money from it and allow you the opportunity to retail or wholesale that car on the way out,” he said.

One of the dealers that Ferri and the team at Flexdrive work with is Duncan Automotive Network. It was in late August that Flexdrive announced it would be the car subscription platform provider for the Virginia-based dealer group.

The Duncan group, whose stores include locations in towns near Virginia Tech and in Blacksburg itself, has found that a subscription service may fit the flexibility needs of Hokies and other college students in the area, particularly those from far away who may not have brought their cars to school.

In fact, 30 percent of Virginia Tech grad students hail from other countries, the group said, citing information from the university.

With the store being close to local colleges, the dealer group was set to begin providing the subscription option at its Duncan Hyundai store in Christiansburg, which is less than eight miles from Tech.

“We’re here at Virginia Tech, where we’ve got about 30(,000) to 35,000 students and faculty,” said Gary Duncan, one of the group’s owners, in a September phone interview. “We think that’s where the big thing is going to be for us because of so many graduate students that are coming back here and plus, as we all know with millennials, they don’t want to own a car.”

It was early days still when Auto Remarketing talked with Duncan, but he said one of the first priorities was to create some awareness about what subscriptions entail.

“Everybody’s still trying to figure it out. I think the point-of- sale things that are in development (are that) we’ve got to get in front of the customer and show them the difference from owning a car versus the subscription,” Duncan said.

Among those key differences are the inclusion of insurance in the cost of a subscription and the fact that the customer would not have to worry about deprecation.

“It’s just got to be communicated properly and simply,” Duncan said.

And many dealers are betting that consumers will become even more accepting of ownership alternatives, like subscriptions, over the next decade – even if only slightly.

Others don’t see much growth.

According to a study that Cox Automotive released in October on the “Evolution of Mobility: A Dealer’s Perspective,” 54 percent of dealers believe car subscription will grow slightly over the next 10 years.

Meanwhile, 28 percent see significant growth ahead for vehicle subscription usage, and 18 percent anticipate no growth.

Dealers don’t appear to be turning and running from this new age of mobility, either.

Three quarters of respondents find it beneficial to offer car subscriptions or car-sharing to their customers, according to the Cox data.  The study also listed 10 motivators for dealers to provide such services, and topping the list were “to create new revenue streams” and “to appeal to a new consumer base.”

And it appears dealers don’t see the various forms of mobility threatening their business.  Many see it as an opportunity, while others appear to be ambivalent.

Among dealers who are familiar with the respective services, here’s how dealers are perceiving subscriptions, in particular, according to Cox Automotive data: Forty percent view it as an opportunity; 36 percent see it as neither opportunity nor threat; 16 percent view it as a threat.

The top barriers to dealer adoption for vehicle subscriptions, according to the Cox report, mostly deal with operational or logistical issues. As listed in the report, they are:

  • Not enough knowledge about how to set it up: 38 percent
  • Concern that it would cost more to incorporate than it would be worth: 33 percent
  • It would require too many resources to change the business model: 27 percent
  • Need for outside support to get it off the ground: 21 percent
  • It’s too different from the current dealership model: 20 percent
  • Don’t see our customers being interested: 20 percent
  • Don’t see our market being interested: 19 percent
  • Think it will only be a fad/passing trend: 12 percent
  • I don’t believe there are any barriers: 17 percent

 

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