It's Not a Smartphone: Why Automotive Brands Should Think Different About Subscriptions

Over the past few months, several automotive manufacturers have introduced 'subscription' models as an alternative to ownership. These subscriptions have been touted as being 'just like how you might buy a smartphone'. The smartphone analogy generally refers to the relatively short term commitments to the vehicles and the flexibility to upgrade at will.

But are smartphones and cars really analogous? While the automotive and smartphone plans may resemble each other on the surface, there are a few key differences that create an opportunity for auto makers to really change the game by charting their own course in tailoring subscriptions that best match user needs.

The first difference between the categories is the core value proposition. Volvo, Cadillac, Mercedes, and BMW have all launched subscription models, but there are differences across brands in cost and flexibility. BMW's plan is the costliest and most flexible with monthly rates ranging from $2,000 - $3700 per month. Volvo's plan is the least flexible and most affordable, with rates starting at $600/month. But even at $600/month, these models appear more expensive than a traditional retail contract or lease payment, likely making them appealing to only a small segment of the market. On the other hand, smartphone subscription plans tend to make the phone affordable, and therefore accessible to more users.

The second difference is in the way the hardware is used. The fact is that in the US, the average car sits idle for ~95% of the time, with the average driver making 2.3 trips per day. In contrast, the average smartphone sits idle for 80% of the time, but it is used an average of 85 times during the day in small bursts from morning 'til night. Yet all the existing automotive subscriptions are based on the car being in your possession, devoted to your usage 100% of the time...just like your smartphone is.

And that difference in user behavior creates opportunities for innovative, needs based automotive subscription models--models that would obviate the need to trade off flexibility for choice. Instead, they could be tailored to fit specific individual's lifestyles, while at the same time maximizing utilization rates and fleet efficiencies.

For instance, the same vehicle could be used by subscribers to the 'Carpool Plan' during commuting hours, and the 'Soccer Mom Plan' during the day. Other specific usage plans like a 'Night Owl' subscription or a 'Weekender Getaway Plan' could round out fleet utilization, and lower subscription costs. This would also provide the added value of defraying the cost and hassle of parking, as a concierge could arrange for pick up and delivery. Moving from a 95% utilization rate to even a 70% utilization rate would mean the the car now takes 13.8 trips per day, by 6 different subscribers. This would significantly lower cost, and make subscriptions available to a much larger market. Over time, tsubscriptions could outnumber sales or leases.

So why would car companies want to swap sales for subscriptions? According to Deloitte, by 2030, more than half of new vehicles will be used in car sharing. This could take many forms, including ride sharing services like Uber, or unbranded car sharing like Zip Car, or even rental car services. That percentage rises to over 80% by 2040 as autonomous vehicles become more commonplace, facilitating delivery and pick up. The fact is that all these categories are converging and car companies need to think differently.

Subscription plans that add value could help to drive brand loyalty and stave off new competition. Customized subscriptions that take into account user's needs are suited to offer added value through amenities. What if the car was delivered with after school snacks in the 'Soccer Mom Plan' or piping hot coffee in the 'Carpool Plan'? 

There is also an opportunity to tap into incremental revenue streams by bundling incremental relevant services like WiFi for commuters or streaming children's programming into the kid's shuttle. 

And while car sharing may seem scary to car brands worried about shrinking volume, this is not likely to be the case. That is because the projected number of miles driven will continue to increase. Even at a 30% utilization rate, shared cars would be driven over 80,000 miles per year, a 6 fold increase over the 13,476 US average today. Thus, the fleet would need to be refreshed on a more frequent basis to compensate for greater usage, leading many experts to predict that volume will not go down.

As it seems that change is inevitable,  perhaps it's time for automotive brands to start thinking seriously about different subscription models as a powerful tool to  lead this change!