Higher car payments, rising insurance rates, expensive vehicle repairs and congested areas with too little parking available will eventually become a luxury for millions of people, according to an auto industry consultant.
These reasons are why a subscription car service, such as Flexdrive, may find consumers racing to sign up. Cox Automotive, the same company that brings consumers Autotrader and Kelley Blue Book, recently entered into a joint venture with Holman Enterprises as shared owners of Flexdrive, a new mobility company that enables consumers to subscribe to a vehicle, rather than buying or leasing it.
Bill Playford, vice president of DealerKnows Consulting, told Mega Dealer News that ventures such as Flexdrive are developing because new vehicles are increasingly out of reach to the average American, especially considering the type of vehicles consumers are demanding.
“Customers who aren’t good candidates for leasing are having to turn to long-term financing – up to 84 months – to get to an affordable payment,” Playford said. "Objectively speaking, these changes are out of the manufacturers, retailers and consumers’ hands. It’s something that we all have to contend with, and it’s part of a much larger shift.”
A vehicle subscription service likely will benefit dealerships for at least a short period.
“It will help dealerships better address the need for late-model used vehicles that better reflect market demands,” Playford said. “Instead of having to rely on off-lease manufacturer vehicles and fleet auctions, dealerships will have access to their own vehicles once they are out of subscription service. They can either choose to keep them or offer them up for sale to dealerships where subscription penetration is minimal, thus creating a completely new market for vehicles.”
However, a shift from ownership to subscription will essentially remove the need for the traditional retail model.
“Banking on a diverse inventory mix, multiple service bays and palatial dealerships will be a thing of the past,” Playford said. “As in other industries, this dramatic shift will create a ripe opportunity for a startup (Uber), a non-automotive entity (Google), or the manufacturers themselves (GM/Lyft) to cut the dealership out of the equation entirely. It only makes sense for the large dealer groups and vendor conglomerates to move first during the transition phase. In essence, it allows the traditional players to keep what is theirs before it gets taken away from them completely.”
Also, this concept will go a long way in improving customer perception, Playford said. Likely, the shift will move from everything being about price to convenience and customer experience.
“Does the customer want a Holiday Inn, Marriott or Montage experience?,” Playford asked. “Dealerships (or any organization involved in the space) gets to decide on how they’d like to compete, without the notion of having to gamble money on back-end profit and service loyalty to ensure the customer feels like they got a fair deal. It’ll take time for dealerships to unlearn the behaviors that were successful in the past. Those who do will cash-in on automotive’s future.”
With any new innovation comes questions and potential negative consequences.
Playford said those in the automotive industry will be wondering, “How long will investors and shareholders be willing to wait before this model reaches critical mass? Can fleets scale with demand? Will vehicles always be available when people actually want them? How fast will these vehicles depreciate, and will there be any demand to purchase retired units (will the cars just be considered sunk cost at some point)? Will the future of the industry end up with a Microsoft Zune or an Apple iPod?”
Playford predicts densely populated areas, such as New York City, its neighboring New Jersey boroughs, the San Francisco Bay area, Boston, Washington, D.C. and Chicago, will be “waiting in line” to get in on a subscription service.
“The privilege of parking a vehicle in these cities can exceed what a working underprivileged person makes in a year,” Playford said. “As these services become more ubiquitous (and thus more cost competitive), usage should increase across all income levels, with the higher income levels moving from two or more daily-driven vehicles to just one and lower income strata getting rid of their vehicles altogether.”
Early and continued growth should also be expected in American technology centers, such as Seattle, Austin and Denver, due to the high concentration of innovators, non-traditional workforces and extremely diverse populations in those cities, Playford said. “Detroit should be thrown in the mix because, like it or not, they’ll still be the motor city, no matter what,” Playford said.
The first Holman franchise to offer consumers the ability to "flex" is Flexdrive of Cherry Hill, New Jersey, located about 10 miles outside of Philadelphia.
Through Flexdrive, consumers can subscribe to a car via a mobile app within minutes and drive away without worrying about insurance, maintenance or any other expenses that typically come with buying or leasing a vehicle, according to Cox Automotive. Drivers can swap vehicles at any time, giving them the flexibility they crave without committing to a long-term contract.
Flexdrive aims to address the pain points of vehicle purchasing, vehicle ownership and vehicle disposal. Subscribing doesn’t require a down payment or a credit check. Also, weekly and monthly payments cover maintenance, roadside assistance and insurance, according to Cox Automotive.