Winners and Losers - Car Subscriptions

Published 19 November 2020
in Reviews
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In the latest in our Winners and Losers series, Pike and Bambridge MD, Piers Bambridge, examines the world of car subscriptions.

We live in a ‘Subscription Economy’, this much is now indisputable.  The phrase, originally coined by the subscription software company ‘Zuora’ describes the increasing trend of traditional pay-per-product (or service) companies moving toward subscription-based business models.

Whether it be your mobile phone contract, to the plethora of entertainment options (think Netflix, Disney+, Amazon Prime and so on) that have exploded in growth with the 2020 global lockdowns, we are all far more comfortable paying out a continuous stream of money for our lifestyle services than a generation ago.

What does this mean for cars, and is this model inevitably going to be adopted by the car industry?  In truth, it has already begun the shift.  Over the past 10 years we have seen a huge growth in personal leasing, offering fixed monthly cost for your car usage.

More recently, manufacturers such as Jaguar Land Rover, Volvo and Volkswagen have all launched subscription offerings (more on this below).

But will this world of ‘flexible mobility’ really catch on when the relative price points are, on average 30-40% higher than alternative lease options?

As Pike + Bambridge MD, Piers Bambridge, recently suggested at the Institute of Directors Scotland annual conference; “Car Subscriptions are an eventuality, but will remain a niche option until we arrive in the world of autonomous vehicles.  Fully autonomous vehicles, that increase the core asset usage from the current 4% of the average car in the UK, will bring costs plunging down, and allow for mass adoption of ‘Mobility as a Service’ or MaaS.”


Winners – Tesla

 The battery technology, the business model of far smaller footprint ‘retail’ spaces, and the comfort their customers have with dealing online all point to a major win for Tesla in the 2020s.  Add this to their huge first-mover advantage in the field of autonomous vehicles, and the data required to support this and we can only see Tesla’s status as the world’s most valuable automotive manufacturer increase in the decade ahead.

Car subscription from Tesla is coming, and once autonomous arrives, expect to see the flexible system of taking a Model 3 out for your weekly commute and then upgrading your subscription to swap it out for the Roadster at the weekends.


Winners – Electricity companies

A relatively new entrant to the world of mobility, we predict much greater collaboration between the automotive and energy sectors.

Imagine bundling in your subscription for your car with your monthly energy bill.  You’ll receive reductions on your monthly energy bill when your car plugs back in to the grid, and energy companies will rival banks in leasing you the asset that will greatly increase your energy consumption and therefore their profits.


Winners - Car Rental Companies

We expect to see significant growth within the rental market as flexible leasing becomes more popular.  The likes of Enterprise Car Club, or Thrifty’s ‘Flexi-Rent’ have already established the model. 

The challenge here is translating the transactional, often poor service levels of car rental companies into a longer term service relationship.  Watch this space.


Losers – Car Dealers

The typical dealership relies on 2 main revenue streams from new cars for its profitability and feasibility; servicing revenue and new car margins where the dealer purchases the car from the manufacturer at wholesale and sells it to the retail customer.

The former is already under threat as electric cars grow in popularity, reducing the opportunity for servicing revenue by circa. 50%.

Replace the latter sales revenue stream with a ‘handling fee’ model, and the traditional vast showrooms, with high fixed costs and depreciating assets potentially becomes untenable. 

 Expect to see a metamorphosis into flexible ‘demonstration’ and ‘handover’ centres on a much smaller scale, in more convenient locations in the years to come.


Losers - Car Ownership

As the world moves to a more flexible mentality, the old days of owning your car for 5-8 years feel increasingly outdated.

The millennial generation increasingly embraces flexibility over many other needs. Among many examples, John Lewis have embraced the idea of renting their furniture and themselves are now investing in property spaces with a focus on flexible living. Whilst there is a growing movement across the world of ‘habitat subscriptions’ meaning you can pay a monthly fee and one month live in Edinburgh and the next month live in South London.

As Zara Hammond who heads up the Pike + Bambridge ‘Membership’ schemes, “We’re seeing an increasing number of clients who are willing to pay a premium for less commitment and all of the associated elements of car ownership bundled into one package”.


Winners and Losers – Established Manufacturers

This may seem like sitting on the fence, but there will inevitably be winners and losers amongst the more established manufacturer brands.  Expect to see further consolidation of brands, and those who win in the subscription market, being those who have previously adapted to the shift to the electric technology quickest.

One thing is clear, manufactures will increasingly look to circumvent the dealers as they offer subscriptions direct to clients, but judging this correctly will be key.  One only needs to see all-electric sister to Volvo, Polestar, and its struggles to penetrate the market in 2020 as evidence that eschewing the traditional sales channels entirely can bring a high degree of risk.