As car subscription adoption heats up among dealers, and consumers begin to recognize its availability and value, the category itself requires some definition. Reality is that the programs out there are actually quite different from one another. In fact, in recent weeks these differences have come into the limelight with a temporary ban in Indiana and a hold in California due to implications on revenue generation and potential infringement against dealership franchise law, specific to programs that cut dealers out of the equation.
As an early entrant in the space, we’ve seen numerous subscription programs come on the scene and have talked to nearly every business creating vehicle subscriptions at the OEM or technology provider level during the past four years. As we see it, there are really three categories of subscription players, each of which have their strengths:
OEM: Subscription programs by OEMs continue to crop up and evolve based on market response. While these programs afford consumers the flexibility of subscription, they often come with limited vehicle options and higher price points. Sometimes the programs center on market awareness for new model cars, or act as an effort to create brand affinity with a specific demographic—both of which serve their purpose but present scale and adoption hurdles. More importantly, many don’t incorporate the dealer or offer a business model and economics that enable dealerships to diversify their business and move toward the concept of mobility.
Mini-lease: Subscription by definition is “an arrangement for providing, receiving, or making use of something of a continuing or periodic nature on a prepayment plan,” according to Merriam-Webster. When paired with consumer expectations from the mounting number of subscription options in their lives like Netflix, Stitch Fix or BarkBox, there’s an inherent understanding that you can start and end a subscription on a weekly or monthly basis—no strings attached, no financial penalties. All this to say, a handful of vehicle subscription providers and OEM programs are actually in fact mini-leases. They are shorter term than a traditional lease, and in some ways have more flexibility, but ending short of the contracted time—which can be up to two years—results in financial implications for the consumer. And for dealers, it may result in selling the car into the program (an initial short-term revenue win), but recurring revenue and ownership of the subscriber relationship is not part of the deal.
Pure play subscription: The final bucket centers on the concept of pure play subscription that affords consumer choice, freedom and flexibility—no strings. At the same time, it centers on the dealer and creating a business model that integrates into existing operations, while promising a recurring revenue model. It includes a wide variety of inventory across a spectrum of price points. It’s that simple. Pure play subscription programs typically anchor on legal principles associated with renting and leasing (limits the vehicle owner’s exposure with respect to vicarious liability). These legal structures allow subscription companies to compete from a price perspective with more traditional forms of ownership, while providing more flexibility in experience to consumers. For subscription companies, this creates an opportunity to get creative in structuring programs that fit between traditional lease or rental structures, while positioning their brands and consumer experiences as a viable (and better) alternative to leasing, debt financing, or long-term equity ownership.
So, for dealers, fleet owners, OEMs or anyone looking to get in the car subscription game, it’s important to determine what your business goals are for the program today and in the coming years before diving in…especially when paired with potential legislation that may make certain subscription programs unsustainable in their current format.