Car subscriptions have been one of the most exciting developments in the auto industry in the past year. By offering a good balance between ridesharing (Uber, Lyft, etc.) and full ownership (buying or leasing), subscriptions are getting increasingly popular both with customers and auto retailers.
Subscriptions are especially appealing to dealerships and fleet operators because they create a recurring monthly revenue while offering a mobility solution that addresses a unique customer need.
When a fleet operator considers offering a subscription product, it is important to understand the various flavors of vehicle subscriptions that are gaining traction and how each fits with the existing business and unique strengths of the operator. Based on our experience powering a range of business models with the Carma Subscription Platform, we have seen three distinct subscription types, each with its own characteristics:
- Luxury subscriptions
- Mainstream subscriptions
- Subprime subscriptions
Let’s discuss each type of subscription in more detail:
Luxury Subscriptions
These subscriptions are often priced between $1,500 and $3,000 per month and focus on giving customers access to a selection of high-end vehicles. The key benefit to luxury subscriptions is the ability to change vehicles as often as the customer wants. In addition, these subscriptions have no mileage restrictions or high mileage limits. Customers are willing to pay a premium, because they see it as having access to a garage with multiple cars and, as a result, they expect to be able to change vehicles often.
This usually means an operator offering luxury subscriptions should expect to operate a concierge service to fulfill frequent vehicle swap requests. In addition, vehicle selections need to include high-end trims, as well as functional variations such as SUVs, trucks, and minivans for different customer needs.
Mainstream Subscriptions
These subscriptions typically target tech-savvy millennial buyers seeking value in vehicle ownership. These subscriptions are often mile-limited (such as 750 miles per month), and usually allow swapping vehicles once a month (or less frequently). The key motivation for customers in this segment is getting a reliable car without a long-term commitment. Month-to-month subscriptions are very popular in many other consumer products (such as entertainment, wireless communication, etc.), so these customers find car subscriptions natural.
For dealerships, this type of subscription might be more in-line with the current business model and can often be a source of leads. Vehicle selections typically include mainstream sedans and light SUVs, with some additional choices for functional variation.
Subprime Subscriptions
For the subprime customer segment, the most appealing reason for a subscription service is to avoid making a large down payment. A subscription program targeting subprime customers often lacks a credit-check requirement, instead of operating on a prepaid system. Customers in this segment are most interested in having a reliable car, with a monthly payment for which they can plan.
This segment is often less selective about vehicle selection. However, operating in this segment requires experience with subprime lending and the challenges that are common in this space. If subscriptions are priced appropriately, they can present an interesting business opportunity for dealers experienced with credit-challenged customers.
In general, subscriptions are quickly emerging as a compelling alternative for auto ownership. However, understanding the types of subscriptions and customer segments is essential for successfully launching a subscription program.
Azarias Reda, Ph.D. is the CEO of Carma Car. Carma is a technology company that offers a complete technology platform and strategic consulting to power vehicle subscriptions for auto finance organizations, OEMs, and dealerships. Carma Car is part of Techstars Mobility, the premier global accelerator for mobility technology companies. You may reach Azarias at areda@carmacar.com.
