From vehicle ownership to usage-based subscription models
While mobility offerings such as car sharing are clearly the answer for short-term mobility with maximum flexibility, we have seen a gap in the market for mid-term flexible mobility solutions. Vehicle subscription models will play a key role in filling that gap. In Europe’s five core markets, we expect more than 10 percent of new vehicle registrations for private and corporate customers to be subscription-based by 2025. Overall this represents a volume of >€22bn in new annual auto financing which is up for grabs by new players. Download the Deloitte white paper ”Vehicle-as-a-Service” to find out more.
Customer demand is shifting from ownership to usage-based models
More and more of today's private and corporate customers see vehicle ownership as a burden. Cars have lost their image as status symbols – and not just for millennials. Owning a vehicle comes with responsibilities and long-term commitments that many people are no longer willing to accept. Hence, the automotive trend away from ownership towards usage-based models is gradually picking up speed.
Subscription share of new vehicle registrations in EU5 markets for private & corporate customers (in €bn)
The Best of Both Worlds
Vehicle subscriptions work similarly to other well-known subscription models, e.g., from the music industry: customers pay a flat monthly fee that grants them access to a vehicle (or music) that they can use as they please (within the terms of the contract). Once customers no longer need the vehicle, they have the flexibility to terminate the contract or to upgrade or downgrade to a different vehicle category/ type (or account type) that better suits their needs. This gives customers the advantages of leasing/buying (i.e., their own personal vehicle for a certain period) combined with those of car-sharing/ride-hailing (i.e., flexible mobility without a prolonged financial commitment) in a single convenient product. As a result, subscriptions offer a “happy medium” within the vehicle-based mobility product portfolio.
Vehicle-based mobility product portfolio
Subscriptions add the most value when they are part of a broader mobility services portfolio
Subscription business models can also act as strategic building blocks that allow companies to optimize asset utilization across the entire vehicle lifecycle. In the past, the business model options were quite limited. Car companies either sold a new vehicle directly to the end customer or leased the vehicle and then remarketed it as a used vehicle after the lease agreement expired. Today’s customers are demanding more flexibility, which is putting pressure on vehicle ownership and therefore on traditional one-off sales models. Players can utilize vehicle subscriptions as a building block to master the transformation from one-off asset sales to vehicle-as-a-service models. This is the key to optimizing asset utilization and revenue performance across multiple vehicle lifecycles. Most companies, however, will have to overcome traditional silo thinking to get there.
Vehicle-as-a-Service: Who is best positioned to win in the long run?
Today, mainly new players are attracting attention with their subscription models. They gained an early-mover advantage, acquired customers and experience and developed a high degree of digital maturity. Although the large incumbents (e.g. leasing & rental companies, Captives & OEMs) may be lagging behind at the moment, they may still win in the end.
Having a favorable starting position to launch their own subscription offers is one thing, making the right choices to prevent the competition from outpacing them is quite another.
The following are the most urgent action items for incumbents:
- Get up to speed with state-of-the-art digital sales, superior customer engagement and data analytics.
- Build a thoughtful subscription offering that aligns with the overall product strategy.
- Manage all sales channels in close alignment to maximize customer and vehicle lifetime value across all products and overcome the traditional siloed view.
- Optimize asset pool utilization using analytics-based dynamic pricing.
- Build a multi-brand strategy (particularly relevant for Captives and OEMs).
While new entrants are currently leading, incumbents still have the potential to catch up by configuring the right sustainable model. Vehicle subscription models are here to stay, promising to transform the vehicle finance market as we know it. The time to act is now.