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The growth of car subscription has compelled automakers, car dealers and emerging startups alike to be a part of this new mobility rush as a way to future-proof their business. As competition increases in response to new entrants, automakers and car dealerships search for ways to fast-track their growth and innovation. Similar to the solutions that are being provided by technology partners and insurance agencies, there are also opportunities surfacing for fleet leasing and finance companies. These opportunities are twofold whereby companies have the chance to service the needs of car subscription companies in acquiring and managing their fleet; as well on the subscriber side who may be looking for a flexible finance alternative for their car subscriptions.
Moving up in the value chain
Car dealerships, in prioritising one-off transactions, have left their F&I sales as an afterthought strategy. The reality is that as affordability concerns and economic uncertainty remain, consumers will opt for flexible and easier mobility options - meaning F&I will have an even bigger role to play with car subscription being a key component of their product portfolio. Loopit is already seeing this with our existing dealership clients where the BDM or finance manager is becoming responsible for car subscription as it is a natural extension of their core function. The emergence of car subscription as an alternative, and not a direct replacement of sales and finance, demonstrates its lucrative potential to grow into a strong revenue stream - meaning fleet leasing and finance companies will have new opportunities to serve across the value chain.
Serving an evolving market with a first-in-market product
The byproduct of this changing landscape has been companies beginning to double down on an aggressive go-to-market strategy marked by speed and large fleet offerings - as headlined by Hertz in their acquisition of Tesla Model 3 electric vehicles and Volkswagen’s takeover bid for Europcar. It goes without saying that these two strategic partnerships in the past year are a reminder that while innovation may be a success factor, longevity in the car subscription market or any other new mobility venture is fundamentally rooted in cost-effective procurement of fleet vehicles.
As the “modern mobility ecosystem” continues to evolve, automakers, dealerships and mobility providers will be challenged to scale their operations and fleet offerings in order to meet the rising demand from modern motorists. In recent times, car subscription companies looking to expand their fleet with a focus on acquiring electric vehicles have turned to debt and equity financing. These strategies, though ambitious, raise questions of financial sustainability in the long run and call for new leasing and finance solutions.
This demand, left unserved, presents a lucrative opportunity in the market that can be capitalised by fleet leasing and financing companies to develop a product that is tailored specifically for car subscription providers. Regardless of who these companies are serving, the opportunities are apparent. For dealerships, fleet leasing and finance companies can leverage their current relationship established while for new players who may not have an in-house business manager or finance specialist, this may present an even bigger opportunity to provide end-to-end solutions that bundle a suite of services such as vehicle procurement, fleet maintenance and repairs.
Despite the popularity of floorplan financing, the reality is that the arrangements and terms are unsuited to the dynamics of car subscription programs. While floorplan finance offers automakers and dealers the opportunity to purchase fleet vehicles in bulk and take advantage of early payment discounts; the nature of car subscription demands for a financial product that has flexible contract terms takes recurring future revenue into consideration and calculates lifecycle costs accordingly to the car subscription model.
“Finance is where the real action is right now in the world of mobility. Customer buying patterns are changing from outright purchase.” - Joao Leandro, CEO of the newly renamed Mobilize Financial Services.
Offering more convenient options to subscribers
From paying only for their vehicle usage to selecting their subscription add-ons, the modern motorist has proven its responsiveness towards being able to align the flexible arrangements of car subscription to their lifestyle. Much of this behaviour has already translated to how many of our clients across the Loopit network have witnessed their customers taking full advantage of the ability to change their billing period.
These behavioural traits may be a segway into a potential finance opportunity, where consumers may be attracted to buy now, pay later options that can help with their subscription repayments. Dealerships, in particular, may find it beneficial knowing they can offer their customers a package finance offer that consists of affordable payment plans whilst complying with finance rules.
“A new core capability will be to ensure the convergence of products from the consumer’s point of view. That means the product – be it leasing, subscription or rental – is secondary, whereas the ability to serve a consumer’s desire for individual flexibility is paramount.” Stefan Imme Chief Digital Officer at Volkswagen Financial Services
The bottom line for the growth in car subscription is that there’s money to be made by supporting the market and not solely having to participate with a fleet offering. Such support may come in the form of developing new financial products for subscription providers looking to grow their fleet; or providing affordable finance options for new subscribers. Fleet leasing and finance companies are encouraged to look ahead of the potential opportunities so they can be in an advantageous position when the automotive industry begins to re-accelerate.
