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With the rise of Mobility-as-a-service, auto manufacturers are now increasingly trying car subscription services in small volumes to test consumer adoption in various regions.
Before, we discuss about the car subscription market, lets discuss what could be the potential reason for OEMs to get into or not get into this business model.
To know more about Global Electric Car Rental Market, read our report
Pros
Cons
Getting a vehicle via subscription is more about convenience (reserved through app), flexibility (multiple short-term plans) that comes with low financial liability.
To know more about Self-Drive Car Rental Market In India, read our report
Revv, a Delhi-based shared mobility platform, has announced a new initiative called SWITCH, which allows customers to subscribe to a curated fleet of cars on a month-by-month or year-by-year basis.
Revv says that this is Asia’s first multi-brand car subscription platform, and that it is attempting to re-imagine the century-old tradition of car ownership.
Revv received Series A funding from Edelweiss Private Equity and has since expanded its regional reach to include Mumbai, Pune, Chennai, Jaipur, and Vishakapatnam.
The mainstream adoption of shared mobility will increasingly rely on an ecosystem of services coming together to meet the full set of needs of someone who wishes to switch to a shared mobility lifestyle rather than traditional car ownership.
While cabs and hourly self-drive rentals have progressively well-served various use-cases, there is a significant vacuum in services dedicated to longer-term mobility.
(low cost, high tech retail outlet)
As we all know by now that COVID-19 has severely impacted all markets and industries worldwide, and the car Industry declined in Q1-2020 at an extremely rapid pace. Auto sales could decline by as much as ~20% for full year 2020. That is a grave challenge for the century old car ownership-based business model. But, what will that mean for the car subscription market? We look at multiple scenarios below
Scenario 1: Certain urban consumers who were earlier used to Mobility as a Service or Public transport and come out of this pandemic, relatively unaffected financially could be the new customers of car subscription as now public transport will operate with reduced capacity and increased fear of usage
Scenario 2: Car OEMs start offering 0% finance in developed markets (US and Europe) with 84-month lease payments as a norm. If car subscription companies could bring down the subscription prices in a comparable range of monthly lease payments then they have a real chance of wooing a customer who is not interested in more than a yearlong commitment of paying monthly lease.
Scenario 3: Car rental operators could introduce car subscription at a reasonable rate to compensate the reduced bookings to improve their cashflow
Scenario 4: People new to the job market and recently employed looking for a new vehicle will opt for subscription to avoid breaking the bank for their first vehicle
As of Dec 2020, US, UK, Australia and India appear to be the focal points of car subscription.
Among the four countries mentioned above, India’s inclusion would surprise all Industry stakeholders because India`s car ownership is amongst world`s lowest at ~22 cars per 1,000 inhabitants. But India is also a very young country and very high traffic congestion in all 8 tier-1 cities in India has made car ownership a liability who just want to get from point A to point B without associated driver fatigue.
In US, 80-85% of vehicles are either bought on finance/lease, which typically includes an average down payment of $3,000-$5,000 and a monthly payment of $400-$700.This might seem ok to people from earlier generation where car ownership was the only option but the millennials , many of whom are burdened with student loans find it a strain on their finances and thus could prefer the subscription model.
The future of car subscription market will also be impacted by the arrival of L3/L4 automated vehicles, consumers who need this kind of service, are typically not very keen on driving themselves and want maximum convenience with low financial liability.
GO, a pioneering car subscription service, has announced the entrance of four new markets. GO is now available in eight major American cities. Philadelphia, Northern New Jersey, Miami, Orlando, Atlanta, Dallas, Houston, and Charlotte are among these cities.
Unlike traditional auto leasing and finance, GO’s approach provides customers with a straightforward and economical way to buy a car.
Customers in eligible areas can order their car totally online in under 5 minutes and save up to 25% per month using the service. There is no deposit required, and there are no hidden costs. The entire procedure is carried out virtually, with no need to visit a physical site. In most situations, cars are delivered free of charge to the customer’s home.
Unlike prior car subscriptions that focused on exchanging vehicles and short-term use, GO is the first startup to offer a car subscription service intended particularly toward daily drivers. GO’s revolutionary approach provides evolution to the industry and represents a new paradigm for car shopping, with substantial advantages over the traditional car buying procedure.
Due to its ease and flexibility, car subscription services have grown in popularity in recent years. Users of these services can access a car for a monthly fee without having to buy or lease it. It’s a fantastic alternative for people who need a car temporarily or don’t want to commit to a long-term lease or purchase.
With the introduction of new services, car subscription services are now much more available. These services provide a wide range of features and advantages, making it simpler for consumers to locate the ideal vehicle for their requirements.
SIXT+ is yet another brand-new auto subscription service. This service offers a variety of vehicles from upscale manufacturers including Mercedes-Benz, Porsche, and Audi and is accessible in both the United States and Europe.
Clients have a selection of vans, SUVs, and cars to choose from. Customers who use this service can exchange automobiles up to four times each month with customizable terms.
Zipcar is a choice for people who want to borrow a car on a temporary basis. In the US, Canada, and Europe, this service is accessible.
A variety of vehicles are available through Zipcar, including sedans, SUVs, and vans. For as little as an hour or as long as seven days, customers can rent cars. Zipcar also offers a number of discounts and perks.
Those who don’t want to commit to a long-term automobile lease or purchase will find these new car subscription services to be excellent alternatives. Many options are available, such as adjustable periods and a selection of discounts and prizes. Customers can obtain an automobile with the help of these services without making a commitment to a lengthy lease or purchase.
Automakers are developing novel and repulsive strategies to extract more money from their customers as the cost of producing automobiles rises and profit margins contract.
The most recent attempt to charge individuals for items their car already has is subscription-based access to features like heated seats or remote-start key fobs. Whether buyers will simply accept it is the question.
Since cars now contain more computers and software than ever before, automakers can quickly add new features or fix issues via over-the-air software upgrades. This has also given these automakers additional revenue streams.
Volkswagen, Toyota, Audi, Cadillac, Porsche, and Tesla have also experimented with subscription models for certain options, such as driver-assist features or voice recognition.
The majority of the subscription plans appear to be from luxury manufacturers, which makes sense given that their consumers are largely wealthy and can more readily swallow an annual or monthly charge.
According to industry analysts, subscriptions are coming to mass-market vehicles as mainstream manufacturers seek new revenue streams to help support their massively expensive plans to produce electrified, connected, and autonomous vehicles.
In the United States, General Motors has around 16 million vehicles on the road, about a quarter of which incorporate features for which customers pay subscription fees.
Finn began selling subscriptions in Germany and now serves the Northeast and mid-Atlantic areas. Prices are extremely affordable compared to standard leases and, in certain cases, result in significant savings when all fees are taken into account, especially for pricey pickup trucks and SUVs.
No activation fee, security deposit, or down payment are required. While Finn does provide up to 1500 miles for an additional cost, the mileage cap is lower than those of other services. There are subscription lengths ranging from six months to a year. Swaps are not permitted.
Outside of Porsche Drive, Sixt+, a division of the German rental company that specialized in luxury vehicles, has the most exclusive, sought-after automobiles.
It’s especially helpful if they live in a big city and require a modern vehicle for at least a month. The limits include a minimum age requirement of 21 (18 in New York), one swap each month, no delivery, mileage restrictions that vary by automobile, a security deposit requirement, and the exact car is not guaranteed.
Fully maintained vehicle with maintenance, roadside assistance, and insurance management handled by ALD for the duration of the contract.
Simple digital onboarding with minimal paperwork. a rapid, digital credit check that is brief. Prior to being recognized as ready-to-drive, ALD registered automobiles are quality-assured pre-leased vehicles that have undergone meticulous professional inspection, extra care during refurbishment, and good maintenance.
UK based Drover and India based Zoomcar have partnered with multiple OEMs for subscription services. Hyundai and Mahindra subscription is available in India through its partner(Revv).Myles have combined with Maruti Suzuki, Toyota, and MG to provide subscriptions in India. In the UK Jaguar Land Rover have combined with InMotion to provide subscriptions.
Going forward, we believe there is scope for tech companies like Drover, Zoom car to scale the vehicle subscription services to many more cities. Although, there will be push back from dealer bodies but many of them just don’t have the required infrastructure to support a revolutionary business model like this.
Fleet operators have an important role to play in providing subscription services along with rental car companies. They have vehicles which remain unused for long stretches which will see increased utility if they are used in subscription. They can set up the entity by themselves as well as combine with tech companies.
Companies also offer the platform for individuals to provide a vehicle for subscription and get payment for their vehicle. It can be a fixed monthly payment or based on a commission basis. This allows multiple partners in this industry ranging from OEMs to technology companies to fleet and rental companies to individuals
The company Cazoo based in the UK acquired the rental car service provider Drover to expand and enter the car subscription market across Europe in December 2020. In July 2020, Drover already raised $28.29 million which put the total funds in the company at approximately $41.4 million by the end of the year 2020. The acquisition will provide customers to subscribe to a car paying a monthly fee or even buy the car according to the existing business model of Cazoo.
The company in January 2021 also announced plans of going public at a valuation of approximately $6.9 billion. Shortly after the announcement, in February 2021 the company also acquired Cluno, an independent leading flexible car subscription service provider based in Germany. The agreement enables Cazoo to access Cluno’s subscription platform and user database to accelerate expansion into Europe.
Hertz Global announced the financial results for the second quarter of the year 2021. The company has generated total revenue worth $1.9 billion for the second quarter which is a significant 62% increase from the revenue of the previous quarter. The company in May 2021, announced the sale of its wholly owned subsidiary Donlen Corporation to Athene Holding Limited at $891 million.
The agreement incorporates Donlen’s fleet management expertise with Athene’s strategic business model to achieve success and expand in the near future. The company announced that it has secured financing for its fleet worth $4 billion by filing a motion in the US Bankruptcy Court in the District of Delaware. The company is planning to renew its rental fleet by the end of the year 2021 by purchase of approximately 229,000 vehicles.
LMP Automotive Holding announced the results for the second quarter of the year 2021, where their total revenue increased from $132.3 million for the second quarter of the year 2020 to $140 million. The overall gross profit also increased by $25 million to 26.4 million for the second quarter of the year 2021 year on year.
The company in August 2021, announced acquisition for a Kia dealership in New York and Connecticut which will generate approximately $82 million and $40 million annually in revenues respectively. It has also announced acquisition of Chrysler Dodge Jeep Ram dealership in New York as well as acquisition of General Motor and Nissan dealerships in Texas
Maruti Suzuki India Limited has extended its vehicle subscription programme in four more cities of the country namely, Indore, Jaipur, Mysore and Mangalore. Now the service will be available in a total of nineteen cities, for the subscription services, the company has partnered with ALD Automotive India, Myles Automotive Technologies as well as Orix Auto Infrastructure Services.
