OEMs are still trying to crack the code of profitability and consumer interest in subscription services. Leading providers in the space weighed in on this relatively new method of car utilization, in a session at the 18th Annual Auto Finance Summit.
Mason McLead, vice president of engineering at car-as-a-service company Fair, defined a subscription as an on-demand vehicle that can be turned in at any time. “If there’s a term attached to it, I think there’s a name for that, it’s called a lease,” he continued. “To be a subscription it must be completely flexible to the consumer to have like a Netflix account — you can turn it on and off whenever you want.”
Yet Borrow’s business model stipulates a minimum lease term, which lessens its risk of losing money.
“For our service, there is only the initial payment for the car, and we have a minimum term that really helps us make sure we’re not losing a ton of money on the cars,” Borrow CEO and Founder Rodrigo de Guzman, said on the panel. “[Profitability] is always going to be a concern for every subscription-based car company.”
Price points for Borrow’s subscription program range from $399 to $624 a month. The average monthly subscription for Fair customers is $350, but it could be as low as $100 a month or as high as $4,000 per month, depending on make and model.
Meanwhile, Hyundai Capital America is taking a wait-and-see approach about whether utilization services will take a larger share of the market, said Mark Abbasi, the captive’s vice president of product development.
“I’m interested to see how the dealer network evolves through these products,” Abbasi said. “We believe there’s a portion of the market that can do it, but we’ve seen limited volume on the new-car side, specifically. I think if you get to 5% or 10% of the market in three to five years, that would be successful.”
Startup Borrow, though, was more convinced that subscriptions will be the new norm for automotive pricing models.
“The subscription aspect of what we’re doing is becoming woven through the thread of everyday life,” de Guzman said. “From how you watch movies, to how you get cars, this is a rising tide of alternative payment structures.”
Check out the exclusive interview below, which is part of a special video series sponsored by White Clarke Group.
