Preparing for a Subscription Economy

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Rapid changes are taking place in the way people buy things. The U.S. is moving toward a subscription-based economy, driving companies to focus less on individual sales, and more on gaining recurring customers. This trend is seen across industries, in companies like Netflix, Blue Apron, Spotify, Amazon, and now BMW, Mercedes, and Audi. But, how big is this market, and who is signing up for these subscriptions? More importantly, how does this subscription-based economy impact the retail automotive industry and the lenders who support it?

E-commerce subscribers are most likely to be 25 to 44 years old, to have incomes from $50,000 to $100,000, and live in urban environments in the Northeastern U.S. Women account for 60 percent of subscriptions. But men are more likely to have three or more active subscriptions suggesting that men value automated purchasing to save time. These numbers track well with the potential prime auto loan customers lenders crave, and they are reflective of the coveted millennial consumer base.

Nearly 60 percent of millennials would prefer to rent a home than buy one. They are also the leading proponents of the share-economy (e.g., Uber) – thanks to their financial position. Aside from record amounts of student debt, millennials earn, on average 20 percent less than Baby Boomers did at the same stage of life, according to the Federal Reserve. This disparity is the driving force for why millennials did not run out and buy vehicles and homes as soon as they graduated high school and college.

Lender Leverage

Lenders are undoubtedly familiar with subscription models. Credit cards could be considered the ultimate subscription. However, transitioning this thinking to auto loans is a new model.

So how do you plug in? Just as lenders include protection products for their credit cards, the same should be included for auto subscription services. The same trends that could affect a person’s ability to make an auto loan payment could change their subscription payment. By offering consumer protection products, like a vehicle service contract or vehicle return protection, on an auto subscription service can further insulate your institution from risk while also creating an additional revenue stream.

With more than 40 years of experience in the retail automotive industry, EFG can help your institution stay at the forefront of the changes affecting your industry today. Contact us today to learn how to extend your reach with the millennial consumers.

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