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Porsche among automakers exploring subscription option.

Are Millennials Driving Auto Dealers to Embrace Subscription Services?

Several automakers already are taking the car subscription model out for a spin; examples include BMW, Mercedes-Benz and Porsche. Other private subscription services offer selections ranging from used vehicles to various makes of electric vehicles.

Millennials are generally described as those individuals born between 1981 and 1996. As a group, the millennials have fundamentally reshaped the economy.

When it comes to consumer spending, the primary difference between millennials and other generations is that they have eschewed ownership and instead have embraced the “shared” or “subscription” based economy.

Industry-Voices-bug.jpgThis has paved the way for Lyft, Airbnb, shared-jet charter companies and peer-to-peer lending. At the same time, it has put pressure on more traditional industries to adapt to the subscription-based business model. The auto industry is no exception.

Enter car subscription services. Basically, with a car subscription or membership program, the dealer or manufacturer owns the fleet, and you pay for the opportunity to use the vehicles.

Let’s take a look at the pros and cons of car subscription services.

The Pros:

  • Less Commitment – Subscriptions may be a year long; however, they usually allow the customer to switch their vehicle monthly.
  • Car Subscription Levels – Subscriptions do not necessarily have to be for the wealthy. There may be different level options for these subscription services, from “base” subscriptions that feature economy cars, up to luxury and exotic vehicles.
  • Minimal Upkeep – As customers return vehicles every month, they will go through inspection to ensure no maintenance will be required for the following month. As vehicles are rotated in and out monthly, it is easier to maintain the “health” of the fleet.
  • Vehicle Flexibility – Members have access to the entire fleet and can switch vehicles anytime. For example, they could have access to an SUV for a family road trip.
  • Convenience – Customers have the luxury of ordering their next car through a mobile app. The customer will simply log in to the app and schedule their pickup/delivery time. A concierge will then pick up/deliver your next vehicle.

 

The Cons:

  • Higher Costs – Customers will be paying a higher monthly bill that covers the cost of the car, insurance, roadside assistance and maintenance.
  • Subscription RetentionDealerships and companies providing these services may have a decrease in subscription retention. Customers on a tight budget or feeling adverse economic effects may be deterred from paying their subscriptions, and in turn might lead the customer to purchasing/leasing another vehicle.
  • Limited Availability – Customers often discover that while it may be on the list of “available” vehicles, a specific make or model may not be accessible when they want it, as it might be “checked out” by another driver or it might be in maintenance.
  • Insurance Liability – Even though the monthly fee includes insurance, limits of liability may mean insurance may not cover all the damage in case of an accident.
  • Ownership – After a time, some customers may come to realize they are paying for the use of an asset which they do not own and may prefer to opt out and buy a vehicle.

Despite the pros and cons, several automakers already are taking the car subscription model out for a spin; some examples include BMW, Mercedes-Benz and Porsche.

There are other expanding private subscription services with selections ranging from many makes of used vehicles to various makes of electric vehicles. There are other “third-party” services such as Fair, Canvas and Flexdrive.

Until recently, if you wanted a car to call your own, there were essentially only two ways to get one: buy or lease. But, thanks to the buying power and influence of millennials, car-subscription services have created a third alternative.

These new subscription companies are operating in a number of places in the U.S. already, and they likely will become much more popular in the future.

Juan Pena, CPA, CGMA, is a director in the audit department and risk advisory practice at MBAF, a top 40 public accounting firm.

 

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