How to: manage the vehicle subscription model
The strategy and technology needed to manage the vehicle subscription business model.
In this article, which is part of our series of “How to” articles, we spotlight some of the issues associated with managing car subscriptions and what needs to be in place, in terms of innovation, technology and processes, for it to prove profitable.
Vehicle subscriptions show promise when it comes to diversifying profit streams beyond retail sales, leasing or rental. Vehicle users are getting familiar with pay-per-use mobility options, car sharing and ride hailing and a subscription is an attractive option for them to access the vehicle of their choice, without having to take out finance.
Customers reluctant to commit to long-term car loans
Global pandemic lockdowns (and the employment uncertainty that goes with it) has made many consumers shy away from long-term financial obligations such as personal finance leasing or car loans. A fixed, monthly subscription provides greater peace of mind when everything except fuel is included and there’s no minimum rental period or cancellation fees.
In summer 2020, car rental company Sixt joined a raft of key players, including JLR, Free2Move, Leasys, GB Car Leasing and Leaseplan’s Subscribe and Drive (a service aimed at SMEs) to enter the subscription market.
However, most products currently marketed as car subscriptions are, in reality, a variation of short-term leasing or long-term rental, which helps the provider better optimise utilisation but is not beneficially geared towards the customer.
Vehicle subscription needs a hands-off relationship
Car subscription management requires an efficient strategy and technology platform that can offer a seamless customer experience. From registering their interest to taking delivery of (or collecting) their chosen vehicle, it makes sense for customers and car provider to have a largely ‘hands-off’ relationship where everything is interacted and automated online. Car rental companies may be set up for this but OEMs, leasecos and dealer networks are not.
Vehicle subscription is particularly well-suited for SME corporate customers and in this case, dealers and leasecos are best placed to offer such a service as they have direct access to customers, and in the case of dealers they know their local market. SMEs may need counsel and guidance, which dealers can provide. They can also ensure the vehicle is well-maintained, which is important when it comes to disposing of it at the end of the term.
Business drivers tend to select better equipped, high-spec vehicles, which hold their value and at the end of the subscription provide dealers with a reliable stock of Certified Pre-owned (CPO) units, which they can sell or offer on subscription again.
Here are some of the key management elements that must be considered before offering vehicle subscription:
- You may be dealing with both private and business customers, which will impact how you market the service, the type of subscription packages you offer, type of vehicles (maybe high-end for business user, less expensive, more economical for private customers) and the way you manage payments and financial reporting. Will you be invoicing subscriptions to a business or take payments online? What type of inventory will you need - cars, Vans, EV powertrains or a mixed fleet? How will you manage this carpool? Are you set up to manage the tax? In the UK, for example, the HMRC’s BIK per day model, instead of the usual 30 days of unavailability, has implications for tax management and each European country has its own way of treating BIK tax.
- You need a frontend app that customers can use to select their vehicle and subscription service, book a delivery or collection and pay the first instalment. Wherever you are in the mobility supply chain (OEM, lease company, rental provider, dealer), managing a frontend consumer app may be new to you.
- Will you be offering a membership subscription or just a subscription of a particular vehicle? A membership scheme gives the customer flexibility as to the type of vehicle they access and when. This is suitable, for example, for customers who work in the city during the week, for which they use public transport and who only want a car on weekends. Although this type of subscription enables you to build a relationship and long-term loyalty with the customer, it entails you having to hold on to a large inventory of vehicles at any one time, with no assurance as to when or if they will be booked and used by the customer. Car rental companies are used to having to manage this flexibility but leasecos, OEMs and dealers are not.
- You need to be set up to manage shorter agreement terms, such as 3, 6, 9 and 12 months and different packages, with everything included except fuel (insurance, service, maintenance, breakdown cover, glass repair and tyres). Some leasing management technology platforms only support contract terms of 36/48 or 60 months.
- You need to be set up to accept and manage electronic document signing (such as DocuSign or Adobe Sign) to keep everything legal and compliant.
- You need to also manage the renewal process, which includes automating trigger reminders to inform customers their subscription is coming to an end. What are you going to do at this point, upsell or cross sell to a different vehicle? How will you alert the sales team to the opportunity? Will you re-market the vehicle that’s coming back or offer it under subscription again? Does it need an engine tune, valet or repair of damage? Will this be charged back to the customer, claimed on insurance or absorbed by you?
- You also need an easy and quick end of subscription termination process – a shorter contract term requires a quicker turnaround of the asset. What’s the most efficient way of managing the inspection process, for example, and being able to turn the vehicle around quickly?
Although attractive for customers and beneficial for suppliers, a vehicle subscription is not an easy business model to manage with existing systems and processes that are built around selling cars. In order for it to be successful, a car subscription must be geared towards the needs of the customer, which means systems and processes must change accordingly.
*Image of a family choosing a car in a dealership, courtesy of Shutterstock.