365 Days Later: What Volvo's Subscription Service Means for the Larger Industry
Despite the push from an eager industry, car subscription services haven’t proven an overwhelming success. The general consensus is that premium services, while intriguing concepts, are too expensive and complicated to maintain at scale. Book by Cadillac, which was recently suspended by General Motors, is emblematic of the public’s lackadaisical response to a system mired in logistical issues.
However, the concept itself isn’t dead just because one manufacturer decided it wasn’t worthwhile. Other premium nameplates still have their own services — Toyota plans to launch its own subscription-based pilot program in Japan soon, while Volvo Cars has enjoyed some success with Care by Volvo. Still, framing it as a trouble-free victory for the brand would be a mistake. Volvo’s subscription service has been as much a learning opportunity as it has been an overwhelming triumph.
“Growth is fun, but it can also complicate things,” Anders Gustafsson, CEO of Volvo Cars of North America, told Automotive News last week.
Launched one year ago on the company’s new XC40 crossover, Care by Volvo allows customers to subscribe to a service that bundles payments, insurance, and maintenance costs into a single payment between $650 and $850 per month — depending on trim. Thus far, the XC40 is the only vehicle tied to the service, but the company intends to add the S60 and possibly another model soon, which is important, as Care forces users into two-year agreements that allow subscribers to swap into new vehicle after 12 months.
Of course, the wait is likely to be longer than that for new customers. Things have been complicated. Care by Volvo was bashed early on for its inability to serve customers in a timely matter. Unfortunately, that doesn’t appear to have changed much in the last year. Within its first four months of operation, Volvo claimed to have sold the number of subscriptions it had anticipated over a full year of operation. Still behind, the automaker claims signing up for a subscription on the XC40 now puts you on a waitlist that extends into 2019.
In addition to wondering what type of person pays $850 per month to borrow a car they could have leased for hundreds less, we wonder how Volvo intends to handle trades once the S60 arrives. Presumably, they’ll be subject to the same issues as the XC40 and likely incur more delays and logistical problems.
Gustafsson said Care by Volvo claimed as much as 15 percent of the XC40s intended for dealerships. Volvo eventually instituted a 10 percent cap on the XC40 while the CEO travelled between dealerships to help convince them they each had a place in the automaker’s plan to create revenue streams beyond traditional car sales.
“It’s really the same concerns from everybody, and it’s just that they don’t feel secure,” Gustafsson said. “They’re afraid we’re going to take something away from them … I would say the biggest question mark around subscriptions is that consumers need to decide that. Our retailers are asking, ‘Please let us be involved, because we can help.'”
Volvo’s current plan involves having dealerships find the quickest way to get returned (used) vehicles back into the subscription lineup or prep models for resale. Meanwhile, the carmaker intends to refine the Care by Volvo app, providing a second-generation version to further minimize the need for customers to interact with the dealership.
The big takeaway is that these types of services can work for an automaker if the circumstances are right and set a precedent for a new business model. Volvo’s complete lack of choice between vehicles — supposedly the main appeal of these services (and hardest aspect for automakers to adapt to) — proves that a certain subset of customers are willing to pay more for something that basically just takes care of their insurance provider. This has to be of interest to industry bean counters.
[Image: Volvo Cars]
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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The math still seems off on this. A zero down lease would be about 350-4 on the sky high msrps. So avg good driver spends 100 or less a month on insurance, its still not 650-850. Why not price it fifty bucks over a zero down lease and offer a sliding scale for insurance (just hit fico)? People in the five hundred dollar payment bracket will crunch numbers Volvo, why should I give you more for the privilege of what, getting a different model? Cadillac at least offered different model/driveline types, all of your models are exactly the same.
What an interesting practice