When Karl Benz went for his first test drive in 1886, the automobile changed the way that we live in ways that were unimaginable. Over the course of the 20th century, motor vehicles expanded our horizons, making travel easier and more affordable than it had ever been. The need for vehicles to keep pace with always advancing technologies like automation and connectivity will probably end personal vehicle ownership for most of us in the coming decades, but only after manufacturers create business models that replace individual sales. One increasingly popular approach is vehicle subscriptions.
Pro and Cons of Auto Subscriptions
The idea of getting customers to subscribe rather than purchase products outright has been an appealing one for companies in many markets. From the provider’s perspective, creating a recurring revenue stream is good for business and helps to add some predictability for planning purposes. For certain businesses such as software, recurring subscription revenue can be hugely important to help fund ongoing development and product improvement.
For automakers that have endured some spectacular market cycles over the years, the prospect of stable monthly revenue is particularly enticing. As automobiles become more software-defined, the prospect of continuous recalls to update bugs and security vulnerabilities is something of a nightmare scenario if automakers can’t charge customers for those fixes.
For customers, on the other hand, the thought of a perpetual monthly car payment is significantly less appealing. Thus, automakers have to strike the right balance between what customers have to pay and what they get in return.
Enter the car subscription model. In the United States, Porsche is the latest company to announce a subscription service, joining Cadillac, Volvo, and Atlanta-based startup Clutch. Porsche Passport and Cadillac Book are the most similar. For a flat monthly rate that includes insurance, registration, taxes, and maintenance, subscribers can choose to drive any of the vehicles available from those brands. Porsche offers two price tiers. The entry-level $2,000 per month plan gives access to the Boxster, Cayman, Macan, and Cayenne, while the $3,000 tier lets subscribers pick any current Porsche.
Clutch is similar, but rather than being restricted to a single brand, the company works with dealer groups to build local fleets of a broader range of vehicle types from multiple brands. Clutch currently offers three price tiers, each with more expensive vehicles. Care by Volvo is structured more like Apple’s iPhone upgrade program. Rather than allowing drivers to swap cars at any time, the Volvo plan is similar to a lease that includes maintenance, insurance, and registration but allows customers to switch vehicles annually.
Promise for the Future
These early subscription models are aimed at more affluent premium customers who are more likely to stomach a relatively high monthly fee. However, if these models prove popular, mainstream brands are likely to follow suit with similar programs. Regardless of the price point and brand, the recurring revenue provides an opportunity to fund continuing software updates. The inclusion of maintenance and regular vehicle swaps will provide an opportunity to keep vehicles fresh. Once over-the-air software updates become common, shop visits for those updates will become unnecessary.
Window to Increasing PEV Use
In addition to regular updates, the subscription model also provides automakers with another opportunity to increase plug-in EV (PEV) use. Customers that might not otherwise make a multiyear commitment to a PEV may be more willing to try one as part of a subscription, especially if they can skip a traditional dealer in the process. The transportation business is changing, and we’ll see plenty more experiments before everything settles out.
Tags: Automated Vehicles, Plug-In EVs, Transportation Efficiencies, Vehicle Subscriptions
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