The demand for car subscription models is poised to surge in the coming years, driven by shifting consumer preferences and the growing presence of electric vehicles (EVs). These trends are reshaping the landscape of vehicle ownership as we know it.
For OEMs exploring this space, the window of opportunity for "fast-followers" is wide open. New market entrants can leverage the lessons learned by first-movers to navigate the industry more effectively. By avoiding the early pitfalls and inefficiencies, these businesses can refine their offerings, tap into the existing demand, and deploy more advanced technologies.
Learning from the pioneers
This guide distills key insights from the experiences of early adopters in the car subscription market. Fast-followers can build on the original model, improving where needed and capitalizing on established demand while steering clear of common missteps.
Partnering with the right technology provider
One critical takeaway is the importance of choosing the right technology partner. Car subscription is a distinct business model with nuanced operational requirements, and relying on outdated rental or leasing platforms can be a costly mistake for new entrants.
The technical demands of car subscription—dynamic billing, thorough digital customer assessments, and bank-like customer management—require a platform built for the job. Without the right infrastructure, even the most promising subscription program risks falling short.
Attempting to build a bespoke solution in-house is also fraught with challenges. Many technology implementation partners underestimate the complexity required to manage a car subscription program efficiently at scale. Both approaches—relying on legacy platforms or building in-house—can lead to operational misalignment and scalability issues. What might seem like cost savings early on quickly erodes due to these shortcomings.
At Loopit, we regularly encounter these challenges, which is why we emphasize the importance of using the right tools from the start.
Involving your dealership network early
Early OEM pioneers in car subscription saw it as a potential path toward an agency sales model, with the ability to bypass their dealership networks and sell directly to consumers. In the US, this strategy triggered scrutiny from the Department of Motor Vehicles over potential violations of dealer franchise laws. Whether justified or not, it caused friction with dealers, tarnishing the subscription model's potential.
Loopit takes a different view: subscription is an opportunity to strengthen OEM-dealer relations, opening new markets and creating additional revenue streams. As OEMs reconsider the agency model, it's clear that dealer cooperation is critical for subscription success.
Subscription programs require robust customer-facing infrastructure, exceptional service, and localized support—all areas where dealers excel. Their high-touch approach makes them indispensable to the long-term success of any subscription model.
Rather than viewing subscription programs as a way to bypass dealership networks, OEMs should work closely with dealers to leverage their local expertise and customer-facing services.
Dealers can play a critical role in delivering high-touch customer service, managing vehicle handovers, and supporting regional marketing efforts. By integrating subscription offerings into the dealership ecosystem, OEMs can create a localized, customer-centric experience that builds stronger brand loyalty and generates new revenue streams for both parties.
Car subscription as part of a wider retail strategy
A common mistake made by OEMs at the outset of establishing a car subscription program is treating it in isolation from their wider retail model. Instead, car subscription should be viewed as an integral part of a broader retail strategy, designed to attract new market segments and offer an alternative path to purchase.
For example, one Loopit client found that their subscription customers were, on average, a decade younger than their traditional sales customers. Another estimated that 40% of subscribers eventually went on to purchase a vehicle.
Rather than operating a car subscription program as a stand-alone offering, OEMs should explore how it can be integrated into their existing retail model. This might include offering it as an option for declined finance customers or as an end-of-lease solution for those seeking more flexibility.
Misunderstanding the modern car subscription model
The earliest iterations of car subscription were positioned as premium services, with promises of switching between SUVs during the week and convertibles on weekends. While this image lingers, it no longer reflects the reality of today's successful car subscription models.
Similarly, car subscription is not a fallback for subprime customers. Instead, it has found its niche among financially savvy consumers who recognize the downsides of traditional car ownership—such as depreciation, interest payments, and associated risks.
Modern car subscription programs are now geared toward minimum terms of three to six months, and vehicle swapping has become far less of a priority. Today, it's about offering a flexible, low-risk alternative to vehicle ownership.
Managing vehicle depreciation and residual values
OEMs must adopt a proactive approach to managing vehicle depreciation, particularly when it comes to electric vehicles (EVs). A key lesson from the downfall of businesses like Onto is that failure was not due to the car subscription model itself, but rather from an overreliance on an all-EV fleet. When residual values plummeted—especially for Teslas, whose direct-to-consumer (D2C) model enabled steep discounting—Onto’s financial viability crumbled.
To avoid similar pitfalls, OEMs should leverage car subscription as a strategic tool to preserve residual values. Rather than rushing to sell vehicles at discounted rates, OEMs can use subscription to monetize their fleet without the pressure of immediate sales, avoiding the need for heavy discounting that erodes residual values. Subscriptions generate recurring revenue and allow OEMs to maintain more control over fleet depreciation.
Additionally, car subscriptions empower OEMs to better manage market supply. By retaining vehicles within a subscription fleet for longer periods, OEMs can control when and how many vehicles re-enter the used market, preventing the oversupply that often leads to sharp depreciation. This approach strengthens residual values and ensures better long-term profitability, making car subscription a valuable tool in fleet management strategy.
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