20 Sep 18

Six subscription models changing the market

Mobility by subscription these days is a bit like a volcano in full eruption: hot, disruptive, and constantly changing the landscape. There’s a bewildering variety of innovative subscription models. Some may come to dominate the market, other formulas will fade in future. 

We’re still in the laboratory phase, so it’s still too early to say which ones will sink and which ones will swim. But it’s instructive to sample the richness of the mobility-by-subscription offerings out there. Auto Finance News recently compiled a list of such ‘flexible ownership’ formulas. We’ve filtered out one example per category: upmarket, downmarket, dealership-driven, longer-term, used-vehicle, and electric-only. 

  • Upmarket: Book by Cadillac

Launched at the start of 2017, Book by Cadillac got the ball rolling for mobility subscriptions in the U.S. Starting from $1,800 a month, it is anything but cheap. Other luxury OEMs have since launched similarly-priced subscription programmes: Porsche Passport ($2,000), Mercedes-Benz Collection ($1,600) and Access by BMW ($1,100). Those high subscription rates come with maximum flexibility and maximum service: customers can exchange cars (within the OEM family of models) virtually at will, and get their selection delivered via a white-glove concierge service. These programmes are on average $27,000 more expensive than a traditional three-year lease. 

  • Downmarket: Fair

Fair is at the opposite end of the price spectrum. The start-up focuses on what’s affordable for typical U.S. consumers. Via its app, it offers cars from as little as $150 or $300 a month, by only offering used vehicles for subscription. The market thinks this is a viable business model: last October, investors ploughed $1 billion into the company, allowing it to buy Uber’s Xchange Leasing programme. Fair is now Uber’s exclusive leasing partner and is expanding rapidly across America, responding to the demand by Uber drivers for temporary vehicles. 

  • Dealership-driven: Flexdrive

Large dealerships and dealership groups can offer mobility subscriptions independently from OEMs – if they can finance the fleet via their bank partners. However, they typically still work with a tech partner to provide consumers with an attractive and user-friendly inventory system and retailing interface. The three main players in this space in the U.S. are Clutch Technologies ($850), Flexdrive ($750) and Mobiliti ($1,000) – all owned by Cox Automotive. The programmes are dealership-centred: that is where cars are delivered, and services are provided. For dealers, it’s an additional way to generate loyalty from those consumers not willing to purchase a vehicle or commit to long-term leases.   

  • Longer-term: Care by Volvo

The three formulas above correspond to the ‘Netflix’ model, with access to mobility based on monthly fees. Some OEMs are offering something more akin to the longer-term ‘Amazon Prime’ model. The longer term allows suppliers to offer more attractive prices than the month-by-month formulas. Case in point: Care by Volvo. The subscription (from $600 a month) is solely offered for the XC40 compact crossover and lasts 24 months. However, customers can swap to the newer model after a year. A more recent entrant in this segment is Hyundai, which is piloting IoniqUnlimited+ in California: an EV for $275 a month on a 36-month contract (with unlimited mileage, free charging and no down payment).

  • Used-vehicle: Canvas

The U.S. used-vehicle market is being flooded with low-mileage, off-lease vehicles. Ford has decided to market its share of that volume via used-car subscriptions. In May last year, it launched Canvas, offering access to used Fords from $329 per month. The manufacturer looks to repeat that formula with its upcoming Lincoln subscription service, albeit while offering more luxury features on used Lincolns. 

  • Electric-only: Borrow

Mobility by subscription could be an ideal way to introduce electric mobility to an as yet fairly sceptical public, giving them the experience of EV driving without saddling them with the potential risks of reselling a model with very low residual value. LA-based Borrow is offering just that: electric vehicles only, for three-month terms, from $500 per month.

Authored by: Frank Jacobs