How car subscriptions will improve the resilience of the auto industry

By FlexClub, October 19th 2021

There’s been a lot of speculation around what business growth will look like for the automotive industry post-pandemic. Setting aside the lingering chip shortage impacting production volumes, one theme that emerges consistently is the push to accommodate a much wider array of evolving consumer mobility needs. It’s no coincidence that VW has taken the $3.4Bn leap to acquire Europcar or that manufacturers now routinely make mention of car subscription options when launching new vehicles, as seen in the launch of the 2022 Hyundai Ioniq 5.

Around the world, car manufacturers including the likes of Toyota (launched Kinto), car rental companies like Sixt (launched Sixt+), banks like Santander (launched Wabi) and leasing companies like ALD (launched ALD Flex) are deepening investments in the development of car subscription offerings, in an effort to future proof their role as mobility providers.

In this world of ever-changing mobility needs and preferences, rigid vehicle financing deals are becoming less and less attractive to a growing group of consumers optimising for greater financial control after coming to terms with the disillusionment of car ownership. Millions of consumers around the world grappled with their inability to adjust their household expenditure amidst strains on their income during the pandemic. Mobility remains the second-largest household expense after homes, with the average South African spending over 50% of monthly income on these two expense categories. 

Subscriptions offer complete control over monthly expenses for consumers, with the ability to reduce or stop the expense at will. It provides certainty of continued solvency, as the financial health of a consumer is never at risk of being eroded by a looming vehicle liability and expenses can be easily adapted if economic circumstances change. 

We are helping all types of automotive companies venture into the world of subscription commerce and unlock more flexible shopping experiences for customers. However, the transition to becoming a mobility service provider versus prioritising selling units is no simple feat for many automotive stakeholders. Billions of dollars have already been invested globally in the legacy systems and processes that power automotive distribution today, making the adoption of car subscriptions a tougher sell to shareholders already squeamish about several other headwinds the industry is fighting. 

Furthermore, the ability to develop a simpler digital car shopping experience using the current distribution model is constrained by the inherent complexity and disjointed nature of the typical car buying transaction. Seldom will a consumer deal with a single company when buying, financing, insuring and maintaining the car — making the prospect of designing a cohesive digital shopping experience impossible given diverging company objectives.

Automotive executives at the helm of the most progressive brands have realised that the task of digital transformation is much more than a fancy web veneer for their legacy operation. True digital transformation requires a commitment to rethink the underlying operating model by leveraging technology. Case in point, no taxi company in the world has successfully created a ridesharing service as pervasive as Uber just by attempting to build an app with similar features. The world of mobility is littered with hundreds of defunct ridesharing ventures that failed to recognise the importance of building the accompanying tech-enabled operational infrastructure needed to power the app experience — the “operational backend”. Car subscriptions have a similar requirement for an operational backend that is unfamiliar to many auto stakeholders. This is where platforms like FlexClub look to help auto and mobility brands with closing that operational gap.

The history of the most transformative digital platforms over the last two decades proves that maximising customer value is the root of more resilient product strategies. Much has been written about how Amazon and Netflix were able to deliver superior shareholder value over the long-term as a consequence of prioritising customer value, while much larger incumbents refused to relinquish their short-term inclination to prioritise shareholder value above all else.

In the auto industry, for consumers financing a car without the intention to keep it until the wheels fall off, it’s impossible to dispute that car subscriptions offer a significantly superior car shopping experience. Resistance to this idea in some corners of the industry is a function of the incentives that prevail across the legacy automotive value chain. The “Don’t fix it if it’s not broken” approach shared by leaders in this group would resonate in the former boardrooms of Blockbuster (or Mr. Video locally), which continue to serve as powerful cautionary tales.

The most pioneering automotive groups are now working with technology businesses like FlexClub to propel their resilience for years to come. Customers are voting with their spend and the path to sustained growth lies in an unwavering commitment to serve their evolving needs with greater speed and efficiency, regardless of how uncomfortable it might feel at first.

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