Humans especially millennials are fickle-minded. We are always on the lookout for the latest fashion trends, latest smartphones or even the latest Fifa edition. A new trend is emerging globally which suggests that this fickle nature might revolutionise the auto industry forever. Buying cars is a heavy long-term investment.
No asset depreciates as much as cars. Whenever a new car is launched in the market with exotic features, most of us rue the fact that we are stuck forever with the present one. We wish if we
could opt for a new car without any hassle. This is where car subscription comes into play. Car subscription allows a user to subscribe to a company’s fleet of cars and it gives the user to the flexibility to pick and own a car according to needs and desirability- similar to subscribing to Netflix or YouTube Plus.
Car Sales have stagnated for a few years
Who is moving the cheese?
The biggest threat to car dealerships is the automaker themselves. Around the world, due to the capital-intensive nature of the business, automakers have begun rolling out subscription services. Volvo has already launched Care by Volvo, a subscription model on its SUVs.
Cadillac which had suspended its subscription service Book by Cadillac due to operational difficulties is expected to relaunch the service at the end of February 2020. Porsche, BMW and Mercedes too have rolled out pilot programs named Passport, Access by BMW and Mercedes Benz collection respectively.
Toyota too joined the bandwagon by launching Kinto its car subscriptions platform. Currently, Malaysia is the hotbed for this model where many brands are experimenting and jostling to capture the market.
Car Subscription in India
India has not remained insulated from this trend. According to Mint, Mahindra, India’s largest utility car manufacturer has rolled out a subscription programme in association with Revv on select cars to cater to the needs of the salaried and self-employed consumers in Tier 1 and Tier 2 cities.
Mahindra has set the minimum ownership cycle at 1 year after which the user can switch to other car models. Additional benefits include zero down payment, no road tax, insurance, no risk of resale value and no maintenance cost as the monthly fixed amount includes all those costs.
There are some start-ups too that are lurking around to have a bite at the cheery. Dubai based Invygo recently raised $1 million in funding to keep up with the growing consumer base. Los Angeles-based Canoo claims to be the first company to design and manufacture an electric vehicle made for ride-sharing that it will exclusively offer via subscription, beginning in 2021.
According to Goldman Sachs, Car ownership isn’t important for Millennials
Silence before the Storm?
Currently, the subscription business is too small. Many industry experts are placing their bets on this segment to explode. According to Financial Times and Mckinsey, cars remain unused 92% of the time and that cars are getting more expensive and expensive as time progress.
The same report goes on to suggest that the car subscription model can also lead to lower emissions as people would constantly switch to newer cars with better technologies. The very fact that this segment is expected to grow at a CAGR of 71% until 2022 makes this segment too lucrative to miss.
Currently, the world is witnessing a mobility revolution triggered by the likes of Lyft, Uber, Ola, and Didi etc. With Self-driving cars in the pipeline, these developments have prompted the Automakers to reinvent themselves and redesign their business model.
A subscription model would generate stable cash flow for the auto manufacturers. It has the potential to change the cyclical nature of the industry that at times of recession suffers the most. Another additional benefit is that customer lockdown also takes place.
A customer would not switch much from one subscription of one to another quite frequently. With this model, Consumer is the real winner, as brands would focus to develop different variants to fulfil the different needs of the customers. From what I make out of it, I think that in the next decade this would revolutionise the way we live just as Netflix revolutionised our lives in this one.