Did you know that the auto finance market in the EU5 countries is dominated by captive and non-captive financial institutions, accounting for a staggering 81% of new vehicle sales worth around €330 billion? Today’s customers increasingly see vehicle ownership as a burden, leading to a decline in the appeal of car ownership. Mobility services like ride-hailing and car-sharing offer an alternative, but they have their downsides, such as low availability and high costs for long trips. Vehicle subscriptions have the potential to combine the advantages of owning a personal vehicle with the flexibility of shared mobility.
The COVID-19 pandemic has further accelerated the demand for flexible mobility models like vehicle subscriptions, as consumers seek personal transportation options that offer comfort and hygiene. Automakers are introducing subscription-based access to vehicle features, such as heated seats and remote start, as a way to generate additional revenue streams. However, industry surveys suggest that only 25% of customers are willing to pay a monthly or annual fee to unlock features in their vehicles, indicating that automakers may face challenges in successfully implementing subscription models.
Key Takeaways
- The auto finance market in the EU5 countries is dominated by captive and non-captive financial institutions, accounting for 81% of new vehicle sales worth around €330 billion.
- Customers are increasingly seeing vehicle ownership as a burden, leading to a decline in the appeal of car ownership.
- Vehicle subscriptions have the potential to combine the advantages of owning a personal vehicle with the flexibility of shared mobility.
- The COVID-19 pandemic has accelerated the demand for flexible mobility models like vehicle subscriptions.
- Automakers are introducing subscription-based access to vehicle features, but only 25% of customers are willing to pay a monthly or annual fee to unlock these features.
The Rise of Subscription Models
In recent years, there has been a notable shift in consumer preferences, with a declining emphasis on traditional car ownership. As the appeal of long-term vehicle commitments diminishes, customers are increasingly drawn to more flexible mobility solutions. The COVID-19 pandemic has further accelerated this trend, as people seek personal transportation options that offer comfort and hygiene without the burden of ownership.
Customer Demand Shifting from Ownership to Usage-Based Models
Ride-hailing and car-sharing services have emerged as popular alternatives to car ownership, but they do not truly replace the convenience and control of having a personal vehicle. Vehicle subscriptions have the potential to bridge this gap, combining the advantages of owning a car with the flexibility of shared mobility models.
Projections for Subscription Market Growth
Experts estimate that by 2025, more than €22 billion of new annual auto financing in the EU5 markets will shift towards the vehicle subscription market. This market shift is expected to continue to accelerate in the second half of the decade, with projections that 8-10% of all new vehicle registrations in the relevant customer segments will be based on subscription models by 2025. This growth is largely driven by the shift from ownership to usage-based models and the impact of COVID-19 on mobility preferences, as consumers seek more flexible mobility solutions.
| Metric | Projection |
|---|---|
| New Annual Auto Financing in EU5 Shifting to Subscription | €22+ billion by 2025 |
| New Vehicle Registrations Based on Subscription Models | 8-10% by 2025 |
“The COVID-19 pandemic has further accelerated the demand for flexible mobility models, as consumers seek personal transportation options that offer comfort and hygiene.”
The Best of Both Worlds
Vehicle subscriptions offer a unique blend of the advantages found in both vehicle ownership and shared mobility models. These innovative solutions allow customers to enjoy the benefits of having their own personal vehicle while also experiencing the flexibility and convenience typically associated with car-sharing or ride-hailing services.
Combining Advantages of Ownership and Shared Mobility
Much like traditional leasing or financing, vehicle subscriptions provide customers with access to a car for a specified period. However, subscriptions go a step further by incorporating the on-demand, usage-based nature of shared mobility. Customers can enjoy the comfort and personalization of their own vehicle, while also avoiding the long-term commitment and hassles of maintenance associated with ownership.
The benefits of vehicle subscriptions include:
- Flexible access to a personal vehicle without the burden of ownership
- Ability to switch vehicles or adjust mileage plans as needed
- No down payments, fixed monthly fees, and simplified budgeting
- Streamlined maintenance and insurance handling by the provider
By combining the advantages of subscription models over ownership and shared mobility, successful vehicle subscription products offer a compelling value proposition that caters to the evolving preferences of modern consumers.
However, providers must ensure that their subscription offerings are more than just a repackaged version of existing auto finance products. The key features of successful subscription products include a dedicated strategy, laser-focus on customer needs, and a well-defined purpose within the overall business model.
Key Product Characteristics for Successful Subscriptions
To succeed in the long run, subscription service providers need to move beyond a siloed view of individual products and adopt a more holistic business model that optimizes asset utilization across the entire customer and product base. The key is to develop subscription offerings that are not merely recycled leasing deals but fully-fledged products with a well-defined purpose within the overall strategy.
The most compelling subscription value propositions are those that prioritize the specific features that customers value, such as a seamless digital experience, flexibility, and affordability. By ensuring these critical characteristics, subscriptions can become a true alternative that combines the benefits of ownership and shared mobility, rather than a modified leasing arrangement.
- Seamless Digital Experience: A smooth, user-friendly digital interface is essential for successful subscription products, as it enhances the overall customer experience and encourages ongoing engagement.
- Flexibility: Subscription models should offer customers the ability to adjust their service levels, add-ons, or even pause their subscriptions, providing a level of flexibility that aligns with their evolving needs.
- Affordability: Subscription pricing should be structured to provide a more accessible and cost-effective alternative to traditional ownership models, making the service appealing to a wider range of customers.
By focusing on these key product characteristics, subscription service providers can create a holistic business model that optimizes the critical features of successful subscription products, the importance of digital experience, and a cohesive offering that resonates with customers.
“The best way to make the subscription value proposition more compelling for customers is to adopt a dedicated strategy for their subscription products, ensuring that they are not just recycled leasing deals but fully-fledged products with a well-defined purpose in the overall strategy.”
Market Landscape: Player Archetypes
As the vehicle subscription market continues to evolve, a diverse array of players is emerging, each with its unique approach to differentiation. New entrants are pioneering customer-centric models, offering superior experiences and convenient digital journeys, often with a multi-brand solution. In contrast, incumbent automakers are leveraging their established brands and core business competencies to carve out their own space in this rapidly transforming landscape.
New Entrants vs Incumbent Automakers
The most successful new entrants in the vehicle subscription market are those that have placed the customer at the heart of their business model. These players are known for their exceptional customer experiences, seamless digital platforms, and the ability to offer a wide range of vehicle options from multiple brands. On the other hand, incumbent automakers are drawing upon their deep industry knowledge and brand equity to develop their own subscription-based services, often with a focus on differentiating through their core business model and brand strategy.
Own Brand vs Multi-Brand Offerings
When it comes to subscription offerings, players in the market can choose to differentiate themselves through their core business model and brand strategy. Some opt for an own-brand approach, leveraging their established marque to create exclusive subscription services. Others have adopted a multi-brand strategy, allowing customers to access a diverse range of vehicles from various manufacturers through a single platform. This versatility can be a key competitive advantage, catering to the diverse preferences and needs of today’s consumers.
“While Tesla is often seen as the North Star in mobility-related subscription offerings, the company’s record in launching impactful subscription-based services has been underwhelming, with shortcomings in areas such as flexibility, affordability, and transferability.”
In contrast, GM’s OnStar has emerged as a compelling counterexample, successfully developing a substantial subscription-based revenue stream and positioning the offering as a springboard for next-generation mobility solutions.
Optimizing Customer and Vehicle Lifetime Value
As the automotive industry embraces the power of subscription models, industry leaders are discovering new ways to optimize asset utilization across vehicle lifecycles and transform from one-off sales to vehicle-as-a-service. The shift towards subscription-based offerings has unlocked a realm of possibilities, allowing automakers to forge deeper connections with their customers and maximize the value of their assets throughout the entire vehicle lifecycle.
Incumbent players, in particular, have the opportunity to leverage vehicle subscription as building blocks to master this transformation. By breaking down the traditional silo mentality and embracing a more holistic approach, these established players can harness the power of subscription models to drive enhanced revenue performance and asset optimization.
“The subscription-based business model has proven to be the most resilient and reliable, future-proofing business model across multiple verticals. As the global economy enters a prolonged inflationary recession, subscriptions and memberships are the most effective answer, helping automakers and manufacturing companies in general to stabilize revenues.”
By adopting subscription best practices, such as flexibility and affordability, automakers can drive acquisition and adoption, as evidenced by the success of GM’s OnStar connected services offering. This holistic approach to asset utilization and customer engagement presents a promising path forward for the automotive industry, positioning them to thrive in the evolving landscape of vehicle-as-a-service.
Key Strategies for Optimizing Lifetime Value
- Leveraging flexible subscription models to maximize asset utilization across the vehicle lifecycle
- Fostering deeper customer relationships and recurring revenue streams through subscription-based offerings
- Adopting a comprehensive, cross-functional approach to break down organizational silos and drive transformation
- Leveraging data and analytics to understand customer preferences and optimize product and service offerings
By embracing these strategies, automakers can unlock new avenues for growth, resilience, and long-term sustainability in the rapidly evolving automotive industry.
Critical Capabilities and Operating Model Design
As the subscription-based car feature ecosystem continues to evolve, automakers and mobility providers must develop new skill sets and leverage strategic partnerships and acquisitions to remain competitive. Successful subscription models require a fundamental shift in mindset and capabilities beyond the traditional automotive industry.
Developing New Skill Sets
To thrive in the subscription economy, providers must cultivate expertise in areas such as digital customer experience, data analytics, and recurring revenue management. These new skill sets are essential for understanding customer preferences, optimizing product offerings, and delivering seamless subscription experiences. Automakers no longer need to develop the entire range of functionality in-house, but can instead build future operating models by tapping into external partnerships and acquisitions.
Partnerships and Acquisitions
The importance of partnerships and acquisitions cannot be overstated when it comes to operating model design for subscription-based car features. By collaborating with technology providers, mobility companies, and other ecosystem players, automakers can accelerate their transition to subscription-based offerings and gain access to the necessary capabilities. Strategic acquisitions of startups or specialized firms can also help automakers rapidly expand their expertise and innovation pipeline.
| Capability | Description |
|---|---|
| Digital Customer Experience | Designing intuitive, personalized, and frictionless digital experiences for subscription customers |
| Data Analytics | Leveraging customer data to optimize product offerings, pricing, and subscription models |
| Recurring Revenue Management | Developing the systems and processes to efficiently manage and scale subscription-based revenue streams |
As the automotive industry continues its transition towards subscription-based models, the ability to develop these new capabilities and forge strategic partnerships will be crucial for automakers and mobility providers to remain competitive and capitalize on the growing subscription economy.
Subscription car features
As automakers seek new revenue streams, the rise of subscription-based vehicle features has become a focal point in their strategies to monetize in-vehicle technologies. From heated seats to remote start capabilities, a growing number of creature comforts are being offered as paid extras, challenging customer acceptance and expectations.
Unlocking the Potential of Paid Features
A recent survey by Cox Automotive revealed that only 25% of respondents would be willing to pay a monthly or annual fee to unlock a feature in their vehicle. The remaining 75% indicated they would not. However, the features that the 25% were willing to pay for generally fell into three categories:
- Safety features
- Vehicle performance features
- Creature comforts
This data suggests that for automakers to achieve their revenue aspirations by charging consumers extra for features and services, they have work to do in terms of making the value proposition more compelling for customers.
As automakers explore the subscription-based model, they must carefully balance the demands of their customers with the need to generate additional revenue streams. Navigating this dynamic landscape will be crucial in determining the long-term success of their subscription-based vehicle features strategies and their ability to effectively monetize in-vehicle technologies while maintaining customer acceptance of paid features.
Who is Best Positioned to Win?
As automakers set aggressive revenue targets for their subscription-based car features, the race is on to capitalize on the growing demand for usage-based mobility models. While the industry is abuzz with optimism, the path to profitability in subscription offerings remains a significant challenge.
Automakers’ Aggressive Revenue Targets
Automotive executives are under immense pressure to deliver substantial revenue from subscription services in the near future. This signals a clear recognition that software-as-a-service and mobility-based business models hold a much higher valuation potential than traditional vehicle sales. However, transitioning to profitable subscription models is easier said than done, as the number of well-documented success stories remains limited.
Learning from Success Stories
General Motors’ OnStar stands out as a shining example of a subscription-based offering that has managed to develop a substantial revenue stream and position itself as a springboard for next-generation mobility solutions. In contrast, Tesla’s subscription offerings have been met with a lukewarm response, as the company has struggled to fully embrace the principles of flexibility, affordability, and transferability that characterize successful subscription-based models.
The automotive industry should be cautious about obsessing over every move made by Tesla, as this could lead to the adoption of consumer-unfriendly practices and potentially decelerate the overall attractiveness of subscriptions in the sector.
“Pivoting from public relations stunts and attractive sound bites to profitable subscription models in automotive is easier said than done, given the limited number of well-known success stories from which to draw inspiration.”
Conclusion
As the automotive industry evolves, the rise of subscription-based car features has emerged as a significant trend, offering a compelling alternative to traditional vehicle ownership. This model has the potential to meet the shifting demands of customers, who increasingly prefer usage-based solutions over outright ownership.
The article has explored the benefits and challenges of this subscription-based approach, highlighting how it can combine the advantages of personal vehicle ownership with the flexibility of shared mobility. By understanding the key characteristics of successful subscription products, automakers and mobility providers can navigate this dynamic market and deliver innovative solutions that cater to the evolving needs of modern consumers.
Ultimately, the success of subscription-based car features will depend on automakers’ ability to learn from best practices, forge strategic partnerships, and develop the critical capabilities required to thrive in this evolving landscape. By embracing this model and avoiding practices that may be unfriendly to consumers, industry players can position themselves to capitalize on the vast potential of subscription-based car features and create a sustainable future for the automotive industry.