Reinventing the Aftermarket: Will All-Inclusive Subscription Services Be the Next Big Thing?

While “all-inclusive” is a pretty well-known concept in the resort world — many vacation spots boast carefree, wallet-less getaways, where everything is included in one price — the term is almost foreign in auto finance.

But that is poised to change, as several lenders adapt the “all-inclusive” concept into their business models, with an aim to completely reinvent auto finance.

Ford Motor Credit Co., for example, is offering a month-to-month subscription service through Canvas, the startup formerly known as Breeze that Ford Motor Co. acquired in December 2016. Breeze, founded in 2014, was rebranded by Ford post-acquisition to serve a wider audience. The startup’s original business model was short-term leases on hybrid vehicles for rideshare drivers looking to supplement income.

San Francisco-based Canvas started to offer monthly subscription options to Bay Area customers in May, Chief Executive Ned Ryan told Auto Finance News. The subscription includes 24-hour access to a vehicle with insurance, maintenance, warranty, registration, and roadside assistance all bundled into one monthly payment. Insurance and maintenance are mostly provided by third parties, Ryan said. “It’s all bundled so the consumer is only making a single payment to Canvas, and we facilitate any and all services under the product.”

The introduction of the one-price concept — also sometimes referred to as “full-service,” as Georg Bauer, co-founder and president at Fair, describes it — appears to come as an answer to more millennials entering into a car-buying position.

However, for Canvas’s Ryan, it’s more than that. “We actually think it is broader than the millennial market,” he said. “Use-cases vary widely, and traditional car ownership doesn’t always work for everyone. If people change the way they live and work, we believe there need to be flexible alternatives to meet the needs of folks that can’t or don’t want to commit to a multi-year lease or loan.”

Coming to America

Full-service leasing, while not widely offered in the U.S., is already popular in Europe through companies like ALD Automotive in France and Cocoon Vehicles Ltd. in England.

Additionally, Dublin, Ireland-based First Auto Finance launched a product in mid-July designed for international executives working in Ireland on short-term contracts, according to a published report. The product is designed like a long-term rental agreement for new cars, which can cover everything except fuel.

Back in the U.S., several startups and captives are beginning to collaborate to incorporate this all-inclusive offering into their business models. And given the U.S. auto aftermarket is projected to be worth $273.4 billion by yearend 2017, according to the Autocare Association — an increase of almost $35 billion in four years — integrating F&I products seems to be a steady growth opportunity.

For Ford Credit — which had $68.6 billion in outstandings at yearend 2016, according to Big Wheels Auto Finance 2017 — acquiring Canvas was “part of our work to enable future financing and mobility solutions for Ford,” Communications Manager Margaret Mellott told AFN. “Canvas is a laboratory to incubate ideas, develop and test fast prototypes, and improve them through iterations.”

Similarly, General Motors Co. offers a $1,500-per-month program called Book By Cadillac, and Toyota Financial Services — while it doesn’t have a subscription program — is partnered with Getaround for a pilot financial product. The pilot allows lessees to use the income generated from renting out their vehicles on Getaround’s carshare platform to pay for leasing charges.

“We are keeping a close eye on mobility developments to determine how financial services can play a role,” Mike Groff, TFS president and CEO, told AFN. “The aim is to increase the number of vehicles for sharing in a more convenient manner, and to attract new users to such mobility services.” The Getaround pilot is “close to wrapping up,” Groff said. “We will be regrouping in the coming months to determine next steps and what expansion markets, technology, and operations may look like.”

Additionally, Getaround is developing technology to enable its platform to provide on-demand maintenance services, Chief Financial Offer Adam Kosmicki said at Auto Finance Innovation 2017 in May. Getaround is trying to get vehicles to be “richly connected” enough — through its partners, including Toyota Financial — to integrate Getaround’s keyless carsharing technology right into the vehicle, Kosmicki said. This integrated platform will enable the sharing of vehicle information, including what is happening to that vehicle at all times, he added. “That’s not just where is the car? or is the car being used? It’s is the gas low? and does the oil need to be changed?”

Getaround’s platform is built to be that place for engagement around the vehicle, Kosmicki said. “When we know the car needs an oil change — and it’s 3 a.m. and we know exactly where it is — we can share secured, credentialed access, even the car keys, by sharing access through the car. We can provide that platform for services. It’s one of the things we are working on, from a technology perspective.”

The carshare startup hopes to enable people to never have to “sit around and wait” for servicing or maintenance. “We are trying to enable a platform that becomes what an autonomous car is intended to be — way before autonomous cars come to market,” he added.

Other startups, like AutoGravity, are working to incorporate maintenance and insurance options onto their platforms. “On AutoGravity, in the future, you will be able to not just finance a vehicle,
but add insurance and additional products with your car, so [the platform] becomes more of a one-stop shop,” Chief Financial Officer Lukas Wickart told AFN.

As full-service leasing models “pop up,” AutoGravity welcomes those leasing providers as potential partners, he said. “It’s definitely something we are looking at and want to add to our platform going forward.”

AutoGravity’s engineering team is “extremely quick, so we can act super-fast to those kinds of [mobility] trends as they emerge,” Wickart said. “Those all-inclusive lease models, that’s definitely not something we looked at six months ago, but now we are.”

AutoGravity operates in 49 states and has nearly a half-million users, up from 1,000 users in June 2016 when the platform launched. The company is also nearing a half-billion dollars in total volume of loan amounts requested through its platform.

Peer-to-peer car-buying platform Blinker also plans to integrate insurance, parts, and services into its app in 2018, said President Danny Martinez. “Our priorities are executing geographic expansion and integrating lenders, but we are also looking at how we can serve through the car-ownership lifecycle,” he said. “Our technology is great for buying and refinancing cars, but there are other things that enhance the customer experience — such as insurance, parts, and services.”

Currently, Blinker handles all lending activity on its digital platform, but the startup is in the process of “diversifying” its offering by incorporating full-spectrum lender partners, Martinez said. Once that’s done, Blinker will begin integrating with “first-class” companies in the aftermarket product verticals.

Reinventing the Wheel

While the all-inclusive subscription model is not just for the younger generation, for many startups, the decision to offer an alternative to car ownership is a concentrated effort to reinvent leasing for millennials. This is also the reason why many startups and captives are exploring full-service lease models, and not loans.

Millennials don’t understand leasing, residual values, and money factor, Fair’s Bauer told attendees at AFI 2017. “[We] need to define a [new] product, because today millennials like having an easy process, but they hate commitment,” Bauer said. “I think the next step for leasing has to be no fixed term, or a different way of term,” he said.

Fair, although still in startup stealth mode, appears poised to launch its business by next year. Currently, Fair’s website shows that the platform will offer a flexible leasing model. “At Fair, we put you first, not the car,” according to the website. “That’s why we give you a personalized monthly payment range based on your finances, then show you all the best cars for your buck that won’t break the bank. Enjoy the freedom to drive the car you want for as long as you want. And when you’re ready, you can trade up, try something new, or just walk away.”

While Bauer declined to offer specifics on the startup’s business model, he did say Fair is a digital, paperless experience for customers that offers “simplifying access to mobility.” Fair has 60 team members.

Aftermarket products aside, other mobility startups are eyeing opportunities to adhere to the millennial buyer. Shift Technologies Inc., for example, is exploring options for what it calls “virtual leasing” — a perpetual lease agreement not tied to a specific vehicle — which will allow consumers to more frequently swap out their vehicles, said President Toby Russell.

“We haven’t created a sample product yet,” he said, but Shift envisions that over time it will offer this “lease-like option” via the Shift Finance app. “We are working on that product set to make swapping a really simple and easy experience for Shift customers,” he added.

For Canvas, the driver behind a subscription model — versus a lease or loan product — is to take away the commitment factor, Ryan said. As other companies launch similar subscription products, Ford Credit and Canvas are prepared to maintain consumer brand loyalty by offering a “rewards-like” pricing structure. Subscription pricing has not been disclosed, but for the first year, the monthly payment declines each additional month customers stay in the vehicle — the biggest discount being after the first month, Ryan said.

“The pricing structure really is to incentivize people to stay in the vehicle longer, and to some degree you can think of it as a loyalty structure,” Ryan said. “However, we are always running pricing tests, so our pricing model may eventually evolve in the future.”

No matter the finance structure, some traditional lending techniques are going to be replaced by new ownership models, such as mobility-as-a-service, full-service leasing, or flexibility around lease terms, Fair’s Bauer said. Full-service leasing is “where the opportunity is,” he added. “Leasing isn’t going to go away, and car ownership isn’t going to go away, but we have to bring it to the next level.”