February 15, 2023
Car Subscription Services: Can Flexibility and Affordability Go Hand-in-Hand
Car Subscription Services: Can Flexibility and Affordability Go Hand-in-Hand?
Car ownership is no longer the only way to get behind the wheel and enjoy the thrill of the ride. In recent years, this basic idea has paved the way for the growing interest in car subscription services, a modern take on traditional leasing. These services allow users to drive cars on demand without signing long-term contracts like typical leases. They enable users to experience cars they may not be able to afford to buy or test out a unique vehicle, such as an EV or luxury car, for a short period. Unlike leasing agreements, car subscription services offer all-inclusive packages containing maintenance, insurance, road taxes, and other services, making it hassle-free for the consumer to frequently swap vehicles. In other words, car subscription services aim to provide drivers with flexibility.
Car subscription services also offer opportunities for all types of players in the transportation and mobility industry. OEMs can approach consumers directly with new plans. Leasing companies can use their fleets for shorter programs. Rental companies can use their fleets for longer programs. Startups can create short-term commitment platforms for users, or provide technology for other fleet operators.
After approximately five years of activity on the market, we've gained insights into the trends of these services offered by each type of provider. Our conclusion? In a majority of cases, the flexibility and affordability of these services are inversely related: cost-efficient subscription services require a longer commitment than users might be prepared to make.
Let's look at how different companies' programs have evolved in different directions.
Among OEMs, the contrast between Volvo on the one hand and BMW and Audi on the other is illustrative. Volvo’s car subscription program has evolved and expanded over the past five years and continues to grow. Conversely, BMW and Audi's very flexible car subscription pilots shut down after suffering from low demand. The differences are rooted in the fact that Volvo Cars offered a more rigid, cost-efficient program, while BMW and Audi provided a highly flexible program at a premium price.
The same trend can be observed amongst startups. European-based startups Finn and Onto gained significant attention from investors, grew their fleets dramatically, and raised massive funds as they offered their subscription programs. Meanwhile, Cazoo, which entered the market with ambitious acquisitions of other car subscription startups, chose to end its program due to its cash-consumptive nature and lack of alignment with future revenue projections.
The promises of affordable and flexible plans have not been fulfilled as expected. For the time being, it appears that companies are struggling to convey the value of the premium prices to the mass population compared to the alternative. Therefore, in the next few years, an immense amount of market education and a unique selling proposition will be crucial if this model is to succeed.
Based on these patterns, we predict that the market will become less flexible over time, with programs increasingly headed toward "short-term leasing." These will still provide all-inclusive packages – but for longer commitment periods – and will include limited car-swapping options. The market will likely also undergo consolidation, where each region will comprise only a limited number of subscription providers that can efficiently operate under complex conditions.
The car subscription market has not made the progress that was originally expected. However, with innovative solutions for these providers' pain points - operations, value propositions, and marketing - these programs still have the chance to thrive. Car subscription services have the potential to provide the flexibility and affordability that consumers desire, but companies need to address the challenges and find a way to communicate the value effectively.
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Car Subscription Services: Can Flexibility and Affordability Go Hand-in-Hand?
Car ownership is no longer the only way to get behind the wheel and enjoy the thrill of the ride. In recent years, this basic idea has paved the way for the growing interest in car subscription services, a modern take on traditional leasing. These services allow users to drive cars on demand without signing long-term contracts like typical leases. They enable users to experience cars they may not be able to afford to buy or test out a unique vehicle, such as an EV or luxury car, for a short period. Unlike leasing agreements, car subscription services offer all-inclusive packages containing maintenance, insurance, road taxes, and other services, making it hassle-free for the consumer to frequently swap vehicles. In other words, car subscription services aim to provide drivers with flexibility.
Car subscription services also offer opportunities for all types of players in the transportation and mobility industry. OEMs can approach consumers directly with new plans. Leasing companies can use their fleets for shorter programs. Rental companies can use their fleets for longer programs. Startups can create short-term commitment platforms for users, or provide technology for other fleet operators.
After approximately five years of activity on the market, we've gained insights into the trends of these services offered by each type of provider. Our conclusion? In a majority of cases, the flexibility and affordability of these services are inversely related: cost-efficient subscription services require a longer commitment than users might be prepared to make.
Let's look at how different companies' programs have evolved in different directions.
Among OEMs, the contrast between Volvo on the one hand and BMW and Audi on the other is illustrative. Volvo’s car subscription program has evolved and expanded over the past five years and continues to grow. Conversely, BMW and Audi's very flexible car subscription pilots shut down after suffering from low demand. The differences are rooted in the fact that Volvo Cars offered a more rigid, cost-efficient program, while BMW and Audi provided a highly flexible program at a premium price.
The same trend can be observed amongst startups. European-based startups Finn and Onto gained significant attention from investors, grew their fleets dramatically, and raised massive funds as they offered their subscription programs. Meanwhile, Cazoo, which entered the market with ambitious acquisitions of other car subscription startups, chose to end its program due to its cash-consumptive nature and lack of alignment with future revenue projections.
The promises of affordable and flexible plans have not been fulfilled as expected. For the time being, it appears that companies are struggling to convey the value of the premium prices to the mass population compared to the alternative. Therefore, in the next few years, an immense amount of market education and a unique selling proposition will be crucial if this model is to succeed.
Based on these patterns, we predict that the market will become less flexible over time, with programs increasingly headed toward "short-term leasing." These will still provide all-inclusive packages – but for longer commitment periods – and will include limited car-swapping options. The market will likely also undergo consolidation, where each region will comprise only a limited number of subscription providers that can efficiently operate under complex conditions.
The car subscription market has not made the progress that was originally expected. However, with innovative solutions for these providers' pain points - operations, value propositions, and marketing - these programs still have the chance to thrive. Car subscription services have the potential to provide the flexibility and affordability that consumers desire, but companies need to address the challenges and find a way to communicate the value effectively.
