Building on the subscription economy: digitising the experience

In this series Philip Nothard, Insight and Strategy Director for Cox Automotive UK, takes a deep dive into some of the key trends emerging in 2021, how they could evolve in the coming year, and how retailers can capitalise on them.

The number of miles driven continues to rise, even while the number of vehicles sold declines. Although individuals and organisations still need to keep on the move, the appeal of owning a depreciating asset is waning, particularly to a generation which is also struggling to get on the housing ladder. However, shifting trends do not spell the end of the automotive sector as we know it, perhaps just a rebalancing of priorities.

Whereas manufacturers used to speak of being car companies, now the word of choice is mobility. Albeit the concept of Mobility as a Service (MaaS) or Car as a Service (CaaS) is not a new one, its importance has risen sharply in recent years. The desire to access vehicles and wider mobility services at the touch of a button, or app, without the hassle of having to insure, store or maintain the asset provides comfort to those whose work and personal lives are complex.

Throw COVID-19 into the mix, as we saw in 2020, and the waters are further muddied. After the initial 2020 global lockdown, Google Trends data showed people worldwide had been looking for affordable private transport options to avoid having to catch a bus or train; ride-sharing services were hit by social distancing measures; and dealer data suggested there is a ripe market for good quality used vehicles to meet that consumer demand.

Are subscription services the future?

There has also been a sharp increase in the number of manufacturers offering subscription services, allowing consumers to pay a monthly fee to access one or more vehicles on quick-change cycles and with all add-ons such as insurance, breakdown cover, fuel, and so on included. Indeed, the subscription model is arguably ideal for those reeling from the pandemic and looking for flexibility and minimal commitment.

According to a report from enterprise software company Zuora, subscription-based businesses continue to outperform traditional business models even throughout the pandemic. Four in five subscription companies were still growing, when the report was compiled in May 2020, with half of companies growing just as fast as before the pandemic.

While the subscription model has been proven to work in other industries, automotive continues to be slow off the mark. In fact, two-thirds (66%) of dealers in the Cox Automotive sentiment survey have made no attempt yet to build a business strategy around the shift from ownership to usership.

While some felt the move would be delayed due to COVID-19, others talked of the difference between the new and used markets, with the former more likely to see further subscription options. For one respondent, the key question was whether consumers want or can afford to be ‘in debt’ or making monthly payments forever.

Perhaps more interesting is that one in five dealers (22%) say they have created a business model around usership. There is clearly a manufacturer bias at play, with some OEMs much further down the line in creating product than others.

David Bilsborough of Cheshire Cars had this to say on the matter: "The usership model is in some way already with us, in the form of PCP/lease agreements. Total usership, though, I cannot see being big enough to greatly affect the market. Especially while the outcome of COVID-19 is to encourage people to stay in their own vehicle."

A physical asset in a digital world

And let’s not forget that while the vehicle sourcing and selling journey is becoming increasingly digitised, there will always remain a need to process the physical asset. Indeed, organisations like Manheim Vehicle Services continue to invest in increasingly sophisticated and environmentally responsible ‘one stop solutions’ – geographic locations where all elements for whole life vehicle management can be completed. This includes body repair, mechanical and diagnostic recalls, MOT, retail quality imagery and integrated logistics.

It seems inevitable that subscription models will become much more commonplace in automotive in the future just as they have done in other industries. But for now, the majority of dealers remain cautious while the true long-term impact of COVID-19 is yet to be seen.

Discover more on this topic

In this series we’re exploring the key trends emerging this year and how dealers can capitalise on them. For a deeper dive into each topic, look no further than our Insight Report 2020.

The report, produced in partnership with Grant Thornton and our associate partners, LexisNexis and NFDA, takes a comprehensive and informed look at some of the biggest trends and topics influencing the automotive industry today.

Read the report.