by Brandy Bissett
Customers have endless options when it comes to personal transportation: the traditional purchase or lease of a vehicle, on-the-spot rentals, or ride-sharing services such as Lyft and Uber. Nearly 40 years after the leasing model was adopted by Ford, a new contender is rapidly emerging: subscription-based vehicle services.
Many are seeing subscription-based vehicle services as an option tailor-made for the urban, tech-savvy, debt-averse, independent-thinking millennial generation. In fact, millennials are predicted to comprise 40 percent of the potential vehicle ownership market by 2020. Early models for subscription services are looking to adopt the same models and platforms that millennials and others are using to secure haggle-free access to goods and services.
Hassle-free or just a hassle?
A range of car manufacturers and specialized providers are beginning to offer subscription services. The configurations are many, from basic packages that cost over $200 per month to packages that offer a choice between various luxury vehicles for a flat, haggle-free fee of up to $2,000 per month. Most subscriptions include not just access to a vehicle but maintenance costs, registration, insurance and roadside assistance. Some luxury packages even feature unlimited mileage and/or unlimited swaps to new vehicles with full fuel tanks.
Subscription offers the consumer flexibility, without the typical long-term commitments of a traditional lease. Many packages allow subscribers to change car models several times per year or even monthly, at no additional fee and with little notice. Other subscription services provide a concierge who will pick up and drop off the car. Subscription service are predominantly app-based, allowing subscribers to swap out their vehicles from their phone.
But, this convenience comes at a price for subscribers and the operating companies.
Subscriptions can wind up being more expensive than leasing or buying a car outright. Some programs require an upfront one-time enrollment fee in addition to the monthly payments; others levy a “pause fee” when not being used. These programs can be fairly restrictive, such as prohibiting smoking in the vehicle or requiring that all pets be crated (if they are allowed in the car at all). For parents, the cleanliness requirements can pose a challenge and quickly add up to extra costs. To manage their assets, these programs often employ vehicle location tracking technology, which may require subscribers to amend their views about privacy as well.
For operators, there may be significant barriers to scaling new subscribers, as these programs require a solid driving record and credit checks. Subscription services were designed to attract millennials and the younger generations, and yet credit could prove to be a substantial roadblock. Younger subscribers are likely to fall into the category of thin-file borrowers, and lenders must take this into consideration when forecasting the potential adoption of this model. In addition, depending upon how vehicle swaps are structured, the logistics of maintaining this fleet can be even greater than those faced by auto rental companies today.
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Here to stay or gone tomorrow?
Currently, of all the new cars out there, only 30 percent are leased. So broadly speaking, people are still programmed to buy. This begs the question—will subscription models work over the long term and can they scale beyond niche offerings? And if subscription will be sticking around for the long haul, are you prepared? Business process outsourcing, or BPO can help.
As an emerging model, subscription demands more touchpoints in the context of subscription maturity management as compared to the traditional vehicle lease or purchase. For example, interactions between the subscriber and the concierge via phone, web chat or mobile app to arrange for vehicle exchanges could be frequent. In these early stages it can also be prohibitive for a subscription operator to build the front/back office infrastructure at the right price for the level of demand. A BPO operator who understands subscription servicing can help fill the staffing gap to better meet the associated subscription maturity management demands of this increased dealer-customer interaction, regardless of engagement channel.
Subscription is also meant to build loyalty to brands and dealerships. Ultimately, loyalty depends on the subscriber having a good experience: 74 percent of consumers with a loan said prior experience with a lender influences their subsequent lender choice. By partnering with an experienced third-party provider, a subscription operator can rest assured that whether they need help with billing issues, damage claims, roadside assistance or service appointments, their subscribers are being taken care of in a way that makes them likely to return.
Technology development and adoption will also play a role in the success or failure of the subscription model. The current cost of subscription might turn off some prospective subscribers. In the long run, BPO can help drive down operating costs through automation, enabling subscription operators to offer greater value to the market.
Today’s loan origination and servicing platforms are evolving to subscriptions, but there are variants to the model that complicate this. For example, will subscription entail a pay-as-you-go model? Will subscribers be locked into 24 months? How will financing work with younger, thin-file borrowers without a lot of credit history? Subscription operators will need to find ways to leverage new technology to meet these demands.
Overall, the auto industry is in the early days of rolling out this type of vehicle ownership model. Subscription services are available only in select markets, such as Los Angeles, Dallas and Atlanta. The performance in these test markets will likely determine whether the programs will expand. But, as is the case with anything else, preparation is half the battle. BPO can ensure that you’re prepared for whatever the future may hold.
defi SOLUTIONS provides configurable loan origination systems, loan management and servicing, analytics and reporting, and a wide range of technology-enabled BPO services. If you’re struggling with the limitations of your current lending technology solutions, take the first step in realizing the benefits of modern technology. Contact our team today or register for a demo.