Are Car Subscription Services Going to Become the New Normal?
Automakers are throwing everything they currently have at the wall to see what sticks. The concept of “mobility” is now so broad that it encompasses automation, electrification, vehicle connectivity, alternative modes of transportation, driving aids, ride-sharing, ride-hailing, and even subscription services — and plenty of companies are giving them all a shot.
Last week, we talked about Volvo’s new car subscription service. Most of us had difficulties rationalizing the price based on how the product is being offered. A lot of companies are testing those waters right now, especially luxury brands. Lincoln recently launched a subscription initiative that is extremely similar to Cadillac’s, and Porsche has been buzzing about its own “Passport” service. However, mainstream brands like Ford and Hyundai are also trying their hand — albeit very differently.
For the premium brands, the concept is to provide customers with a range of fleet options they can swap in and out of for a monthly fee. Cars are typically ordered and then chauffeured to a previously agreed-upon destination, where the customer can take time to enjoy a run-through of the car’s features before being given an branded swag bag. For Porsche, that costs about $2,000 a month (to start) while Cadillac now charges a $1,700 monthly fee. Lincoln plans to offer its subscriptions at a “significantly lower rate,” according to marketing head Robert Parker.
How is it working out for luxury automakers? Well, in the limited areas they’re willing to test these services, apparently very well. But the secret is achieving a competitive price point, maintaining additional perks, and figuring out which models work best. “Long-term leases will obviously play a role in our overall portfolio, but in the spirit of effortlessness, there is a consumer out there who doesn’t really need a three-year lease,” Lincoln President Kumar Galhotra told Automotive News at the L.A. Auto Show last week. “We’re coming up with a different ownership model for them.”
That’s easier for the premium brands. Those automakers can afford to price services higher because they’re offering much more than a standard lease. But it’s a little more complex for the mainstream nameplates. Currently, Hyundai and Volvo are only offering subscriptions on a single model each. Meanwhile Ford launched its own Canvas service that allows customers to swap between cars month to month and General Motors has Maven Reserve. While not particularly inexpensive, these services do include maintenance, insurance, and (at least for Maven) parking. But nobody seems to have figured out a way to price these offerings in a way that would make them a superior alternative to leasing.
“Automakers are experimenting with a lot of different models to see what customers will accept or want and how much they are willing to pay for it,” explained Sam Abuelsamid, a senior analyst at Navigant Research. “The thing about all of these plans is that for the OEM, by bundling, if they price it right, they can also build in some revenue to fund things like ongoing support for software and map updates. While this isn’t a big thing today, going forward, it will be more important.”
Still, certain demographics may find subscription services more appetizing than others. Urbanites, who don’t need a car 365 days in a row, may find that a long-term rental is the perfect solution in some instances. But then, if you only need a car a handful of weeks out of the year, it might be cheaper to go with a traditional rental than a subscription service.
Automotive News reported a survey of consumers by technology advisory firm Gartner found that nearly half of all respondents would consider using a subscription service for access to a car — and 12 percent would “strongly” consider it.
“However, among people who already use mobility services like Uber or Lyft frequently, the response rate is about double,” said Michael Ramsey, research director at Gartner. “Cost is not going to be the primary motivation for getting people to switch from personal ownership. It will be because subscribing is easier than owning.”
I don’t care what Gartner says — cost will always be a factor. But you can’t ignore convenience and, with a lot of these services, that’s exactly what you’re paying for. But the further you get from a densely-packed metropolitan area with limited parking the less sense this all starts to make.
That said, manufacturers are claiming that they’re little tests are performing better than one might think. Hyundai is trying to reel in potential EV buyers with its Ioniq Unlimited subscription service and thinks it might be able to do the same with its Genesis brand. “[Our plan] happens to be a combination that really has worked for our buyers,” said Brian Smith, COO of Hyundai Motor America, “and I would like to figure out how we can offer it in a couple of different iterations. So something for Genesis would look different than what we did with Ioniq.”
Klaus Zellmer, Porsche Cars North America CEO, said the sign-up for the brand’s small, month-to-month Passport subscription pilot in the Atlanta area has been “overwhelmingly positive.” In addition to bringing in a younger-than-expected clientele, Porsche says over half of its subscription customers opted for the most-expensive package. “[Younger people] do not want to engage with a commitment for three years,” Zellmer said. “They want to change their phones; they want to change their TV channels. It’s all about subscriptions.”
That’s what these types services are most reminiscent of — purchasing a new phone plan. Volvo even markets its package by saying it’s “as hassle free as having a mobile phone.” The contract involves limited term and includes more than just a physical product. But the end result is something you spend a lot of money on and are expected to replace in a few years.
Will it work in the long term? It certainly has for cellular providers, but the automotive industry is a very different beast and is currently undergoing a lot of changes. Dealers have plenty to say about the service (most of it understandably negative), while other premium automakers, like Jaguar Land Rover, are intentionally avoiding subscription services until other companies can figure out the recipe.
There is reason to be cautious. Certain outlets have dubbed Book by Cadillac an abject failure, despite General Motors having expanded the service to more regions earlier this month. However, brands like Lexus are a little more eager to jump in and see for themselves, especially if it means luring younger customers.
“I think there’s just a generation of people who find that it won’t necessarily be cheaper, and it may actually be more expensive,” said Brian Bolain, general manager for Lexus’ marketing, “but it’s simple.”
[Image: Volvo Cars, General Motors]
A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.
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