Would you 'Netflix' your next car?

So what exactly does the Car Subscription Model entail, why is it being offered, who are the players, and how relevant will it be to corporate mobility going forward?

May 7, 2019
Mobility Solution

In today’s ‘Mobility’ world, global trends have shown that consumers are becoming less and less interested in owning cars outright and are increasingly keen to explore new mobility solutions like Car Subscription options.  

So what exactly does the Car Subscription Model entail, why is it being offered, who are the players, and how relevant will it be to corporate mobility going forward?

Shifting demographics, social preferences, technologies and regulation are enabling multiple new mobility solutions for personal travel from point A to point B

Of course, this shift towards mobility solutions, does not mean people wont be driving cars anymore, it will be that instead of them owning their cars use outright, they’ll simply be using shared cars, at a time that it is most convenient for them.

New Mobility providers are competing with the old love affair with the car

Let's consider this “Why would someone spend 85% of their personal transport budget on use of a car, when they only use it for 25% of their overall travel needs?”.

The answer is that they want to keep the old dream of private car ownership alive. The old dream of being able to travel anywhere, anytime. It is about the idea of freedom. People pay to get around, but also for the possibility to get around even when they don’t.

For Mobility as a Service (MaaS) to succeed it has to keep that same dream alive, convenient personal travel at any time to anywhere.

No Fixed Term Contracts

Let’s kicks things off with the ‘What’. The three characteristics of the subscription model are: flat fees, no hassle, easy termination. For a fixed monthly amount, you can get access to a quality car that you can easily pick up and return, plus also access to a bundle of important services, via a contract that anyone can terminate whenever they wish at short notice.

That’s the convenience customers recognise from similar retail formulas, for Spotify, Netflix or just about any mobile phone subscription. Except these subscriptions have been translated to car use,  and this subscription model allows customers to avoid the negative aspects to both private ownership (large down payments, high insurance premiums) and more importantly leasing issues they might face previously, such as having to choose from longer than wanted contract lengths.

Changing Consumer Needs

Next, lets explore the ‘Why’.. Auto Manufacturers who are referred to in the industry as OEM’s are pioneering the subscription model to keep their increasingly restless clientele from leaving them to explore wholesale to shared-mobility solutions that have somewhat eliminated the need for private ownership for some consumers, examples include Uber & Lyft, to name a few.

To remain in the game of selling cars, they are now instead looking at selling subscriptions to service packages, which now including the car the consumer is interested in, as a key selling point of the package.

By taking out the hassle and adding the option to change models, the subscription model could prove very popular with consumers as they become increasingly tempted to move on from personal vehicle ownership to more flexible car-access, subscription services have become be a ‘middle ground’ for those who still want full-time access to a vehicle and flexibility to change models or even ‘pause’ their usage.

Key players entering the Subscription Game

Auto industry manufacturing giants such as BMW & Mercedes, who now prefer to think of themselves now more as ‘Mobility Aggregators’ have begun to recognise that a pivot to Mobility Solutions, such as a car-subscription model, could potentially help their overall bottom line in a number of ways.

These include boosting lagging private sales numbers and also the chance to regain clients  lost to innovative ride-hailing and car sharing companies like Uber. Industry experts believe that the car-subscription model fits quite nicely in the space between traditional personal ownership contracts, long term car leasing arrangements and new on-demand ride hailing services.

Their old traditional vehicle finance models that were unchallenged across the industry, for as long as one can remember, are now under serious assault as companies and their drivers, now seek highly flexible solutions to better match work and domestic lifestyles.

Industry research into the leading US and Europe mobility providers has shown that their product offerings are now being marketed as all-inclusive subscription packages with services such as tyre changing, maintenance and inspections coming as standard.

These new subscription offerings will see significant savings in both time and effort for future subscribers, as they now do not have to worry about sorting out personally, any of these issues that they once faced.

Effect of subscription services on Mobility Services in the future

  • Mobility services will reduce overall vehicle ownership & vehicle usage figures which will significantly reduce carbon emissions.
  • Forecasts predict that subscription services will account for roughly 16.3 million vehicles by 2025 and overall mobility services to grow to 130 million vehicles by 2030.
  • Rising urbanisation, millennials valuing access over ownership, rising smartphone penetration and cities restricting the use of private cars in cities, all favour new technology enabled sustainable alternatives.
  • By being significantly more flexible than typical car-leases.
  • As switching cars becomes the norm, customers will want to subscribe to a brand, rather than own a particular vehicle.
  • Leasing cars via subscription service is a good way to seed new technologies such as electric vehicles. This gives users a way to test the market.
  • The subscription models popularity will be limited by its price. New mobility providers will have to consider the million-vehicle question: “How much will users actually pay for the convenience of a subscription?”

At the moment, it’s still a little too early to have conclusive proof that customers are moving away from private car ownership in significant numbers, especially in Australia.

However there are strong signs that MaaS solutions like Car Subscriptions, could be adopted as a complement to car ownership initially, before becoming a more of substitute, once potential users have more confidence in the service.

With a number of new doors opening globally for the car subscription model, the question of “Would you ‘Netflix’ your next car” is something that we might be asking ourselves in the not too distant future.

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