The Loopit complete guide to car subscription

The future of mobility is fast changing, with the automotive industry seeing a significant uptake in modern methods of car ownership. The emergence of car subscription comes as a byproduct from more consumers developing stronger affinities of convenience and flexibility in their consideration of transportation options. As the innovation race begins to accelerate, automakers and car dealers need to consider incorporating subscription offerings into their business model to avoid being left behind the competition. In this complete guide, we discuss the car subscription business model, the benefits of providing subscription as well as the factors for subscription success. 

What is car subscription? 

Car subscription fills the void between car leasing and rental as a flexible alternative to traditional car ownership, and is typically suited to consumers that require the convenience of car ownership without the long-term commitment. Unlike car rental, which serves a largely utilitarian purpose, car subscription is intended to provide exclusive access to a car through a recurring, all-inclusive payment and flexible commitment as an alternative to car ownership. 

The main benefits of car subscription for consumers are:

• Significantly lower upfront costs compared to traditional car ownership
• The ability to change their car more frequently than owning or leasing a car allows
• Flexible plans and inclusions allow customers to develop a subscription to suit their needs
• The ability to pause or cancel their subscription at any time

What are factors behind the growth of car subscription? 

The current market has seen the uptake in alternative car ownership methods, as the generational shift is changing how younger customers are managing their money. As such, consumers are already embracing the shift to car subscription due to the following three reasons: 

1. The rise of access over ownership. The idea of access over ownership is becoming the norm across a number of industries including food, entertainment and music through companies such as Spotify, Netflix and HelloFresh. This trend is now appearing in the automotive industry in the form of car subscription, as motorists begin to shun the expense of owning their own car in favour of more flexible and cost-effective alternatives.

2. Car ownership is no longer seen as a priority. For younger generations, the importance of owning a car is no longer the priority it once was for previous generations. The rising cost of living, stagnant wages and soaring home prices has meant car ownership is no longer seen as a priority. In the same vein, customers in this demographic have become more financially-savvy out of necessity, and the idea of paying interest on a depreciating asset through traditional car ownership is no longer being accepted. 

3. Technology is the key consideration for new car buyers. The days of high performance engines are fading away with consumer preferences gravitating towards technology when it comes to buying a new car. With the proliferation of electric vehicles, consumers will have an even greater desire to update their cars more frequently to take advantage of new technology innovations such as battery technology, connected vehicles and autonomous driving. 

What Is Included In A Car Subscription? 

With car subscription, subscribers pay a recurring fee which typically includes all on-road costs associated with traditional car ownership. The period in which the fee is paid can vary depending on the subscription provider, but will often involve weekly, fortnightly or monthly payments made in ongoing instalments. These on-road costs include:

• Registration & Insurance
• Scheduled Servicing & Maintenance
• Warranty & Repairs
• Roadside Assistance 

The subscription fee will be contingent on the vehicle itself and will vary depending on the subscription plan. The key variables for subscription plans include:

• A minimum term
• An establishment fee
• Included distance allowances
• Criteria for swapping or returning a vehicle. 

Subscription providers may also offer optional extras and add ons for customers to build their plan according to their lifestyle, such as: 

• Additional drivers so they can also be covered by insurance should anything happen
• Kilometre boost packs for those who drive often
• Child safety seats for those with families 
• Liability protection to reduce the excess liability in the event of a claim

Platforms such as Loopit also provide for customer recurring add ons where required.

How much does car subscription cost?

The intention of car subscription is to be far more affordable than car rental over the medium-to-long term, and roughly on par with car ownership but without the upfront costs, long-term commitment and uncertainty. As car subscription matures, it is expected that costs will continue to decrease as providers leverage economies of scale and offset costs across other business areas such as sales and finance for an overall increase in revenue.

There are several charge types that contribute to the total cost of a subscription for the end consumers:

• Security Deposit. It is good practice to charge a security deposit when applying for a subscription. This acts as collateral against the vehicle during the subscription period and can be drawn upon to settle any arrears or for any above wear and tear items.
• Establishment Fee. A provisioning cost may be charged in the form of an establishment fee when creating a subscription to cover costs associated with onboarding a new subscriber or vehicle costs such as registration. 
• Plan Type. This is the charge incurred for the chosen plan. Each plan may offer different inclusions and the cost of the plan is intended to consider factors such as the minimum term, distance allowance and more.
• Vehicle Premium. Each vehicle carries a premium above the cost of the plan that reflects the value of the vehicle and variables such as the likely depreciation, maintenance costs, age and more.
• Recurring Add-Ons. As part of plan customisation, subscription add-ons are available to tailor each plan to suit the subscriber. This may include claim excess reduction products, additional drivers or any other custom recurring add ons determined by the provider which may include tow hitches, luggage racks, etc. that may be fitted to the vehicle at the request of the subscriber.
• Usage Fees. Providers will typically charge a usage fee for any additional distance travelled above the included distance allowed. This can be monitored via a telematics device fitted to the vehicle and charged at each billing cycle, or based on the start and end odometer reading during the subscription. Other usage fees may include toll road use which is initially charged to the subscription provider then passed on to the consumer, often with an administration fee.
• One-Time Charges. Any number of one-time charges may be incurred during the subscription period, and may include costs not covered by the subscription such as the replacement of a punctured tyre.
• Delivery Fee. Where a subscriber opts to have a vehicle delivered at the beginning of their subscription, a delivery fee may be incurred based on their location.

What are the key steps in launching a car subscription service? 

As car subscription becomes more ubiquitous in the market, both established industry stakeholders and new ventures seeking to enter the market will need to progress through largely the same steps to launch a car subscription service. Launching and managing a car subscription service consists of the following key steps: 

1. Vehicle financing. It is important to align with a financier that is able to provide further capital as the demand increases to meet the growth goals of your car subscription business. Existing automotive floorplan financing models do not cater to the exponential growth potential of car subscription, and rapid success can often be met with an abrupt lack of financing to further scale your fleet. 

2. Vehicle procurement. The vehicle supply chain is the first major consideration for any new car subscription service. This provides a distinct advantage for existing automotive stakeholders such as automakers, dealers and rental providers with an established vehicle supply chain which is also likely to improve buying power and operating margins. As the car subscription industry matures, we will see fleet companies emerge that specialise in providing vehicles for the purpose of subscription. Not unlike existing automakers and dealerships, as a car subscription provider it is important to align your vehicle mix with your intended market segment. 

3. Establishing operations. The operational requirements of a car subscription service include warehousing and vehicle storage, vehicle handover and servicing, sales and customer service, and more. Meeting the operational requirements of a car subscription service will be critical in offering an exceptional service and ensuring you have the fundamentals to support your ongoing growth.

4. Choosing a technology partner. As car subscription continues to grow, new market entrants will need to align with a technology partner that offers configurability and speed-to-market. Developing a bespoke in-house technology solution is no longer a practical option and will typically lead to poorer outcomes and unnecessary costs compared to utilising established car subscription technology platforms such as Loopit. In most cases, new car subscription providers underestimate the level of complexity involved, and Loopit suggests that more than 12 individual software platforms would need to be implemented to match the level of functionality offered by the Loopit platform alone. 

5. Acquiring and retaining subscribers. For automakers and dealerships, it is possible to leverage the existing sales ecosystem to acquire new car subscription customers. This may include customers that are ineligible for finance, fussy customers that may want to utilise subscription as an extended test drive, or as a second vehicle for existing customers. Unlike traditional automotive sales that are highly transactional and infrequent, an emphasis should be placed on retaining and reactivating subscribers in line with the value proposition of car subscription, being that customers are able to pause and resume their subscription when required.  

6. Fleet management and disposal. Ensuring optimum fleet utilisation and ongoing vehicle management is a crucial step for all subscription providers. Operational tasks can include integrating vehicle telematics to provide security and live vehicle data, managing car maintenance and handling vehicle delivery and return.

What Are The Benefits Of Offering A Car Subscription service?

The key benefit for car subscription is the introduction of recurring revenue into the automotive industry. When managed strategically, the upside of car subscriptions is limitless. Incumbents of car subscription will benefit from:

• recurring revenue; where one vehicle has the potential to serve multiple drivers
• consistent recurring revenue to offset seasonal fluctuations
• access to new customer segments, particularly those who may not find it financially viable to purchase a car outright or commit to a long-term contract but may still prefer a car as their mode of transport
• facilitating the product trial process for those interested in owning particular vehicles, for example electric vehicles, but are not ready for a long-term commitment 
• increasing chances for future sales by offering subscribers a longer vehicle trial rather than the traditional 15-minute test drive
• capturing first mover advantage in offering subscribers convenient and affordable access to new car technology
• managing depreciation of fleet by optimising utilisation of used vehicles fleet 

‍

What are the key success metrics for a car subscription service? 

Success in subscription will depend on the five core functions: 

1. Seamless onboarding experience and robust customer assessment 
2. Secure payment management  
3. Flexible and customisable subscription offerings 
4. Dynamic marketing and customer relationship management
5. Inventory management ‍

1. Seamless onboarding experience and robust customer assessment 

In signing up new customers, it is important your business builds a seamless onboarding process that:

• integrates with your existing vehicle inventory system 
• offers customers self-service onboarding allows customers to select their vehicle, subscription service, book a delivery and make regular payments 
• implements a robust, real-time customer assessment that seamlessly integrates best practices across customer credit assessment, identity verification and fraud detection into the onboarding process. It is also important that in trying to maximise the number of qualified customers, your business can define your own appetite for risk with customisable eligibility criteria 

2. Secure payment management 

Upon finalising your point of sale, successful and secure payment management will require:

• an automated recurring invoicing, usage billing and payment management to  ensure on-time, secure payments
• security and encryption with secure credit and direct debit payments that are PCI compliant

3. Subscription offerings

As part of the shift towards being customer-centric, your business should offer: 

• contract flexibility that provides subscribers the autonomy to cancel or renew their subscription plan based on changing needs
• customisable plans through optional add ons such as extra kilometres and liability protection
• range of different vehicle offerings to allow drivers to subscribe to a vehicle based on their functional or lifestyle needs

4. Dynamic marketing and customer relationship management

Marketing efforts should seek to identify opportunities in the customer journey that maximises customer value; and can involve: 

• establishing a fluid renewal process that has the ability to automate reminders to inform subscribers that their plan is coming to an end 
• upselling and/or cross selling based on changed needs due to seasonality 
• announcements around new vehicle listings 

5. Inventory management 

In order to offset depreciation and maintain vehicle value , business need to be implement reporting and analytics that enable: 

• asset, revenue and lifecycle management of the vehicles 
• optimum fleet utilisation through flexible pricing to manage peak and off-peak periods
• identifying the best time to sell or refurbish a vehicle to avoid unwanted depreciation  

At Loopit, our mission is to make car subscription a ubiquitous offering alongside sales and finance for automakers and dealerships by democratising the car subscription services market with our platform.

What are the common mistakes made by new car subscription providers?

1. Lack of internal advocacy 

Given the infancy of car subscription, many internal stakeholders may still be speculative towards the benefits of car subscription to their business.  When tied to traditional sales strategies such as 0% car finance or vehicle trade-ins, many sales teams may find it hard to view subscription as a viable option to offer customers. Whether it’s the fear that subscription will take away from overall sales performance or that subscription will not yield a valuable ROI, there needs to be an internal “champion” who can take the lead. Without this  “champion”, there are chances that leads may be left unattended or misinformation being shared internally and externally to customers about the subscription service. 

 The champion needs to consider the following with their wider team:

• ​​How would a subscription program complement our traditional sales channel?
• What do our customers value and how will our subscription program provide that?
• Which capabilities do we build internally, and which ones do we outsource to partners?

‍2. Incomplete understanding of car subscription service

When it comes to internal communication around the subscription service, it is imperative that automakers and car dealers have complete understanding of all aspects of the subscription. 

This includes information about: 

• fleet management and operational procedures (including vehicle delivery, return and incident management) 
• subscription booking processes 
• marketing efforts 
• target customer segments 

Since subscription is promoted to be a complementary strategy to traditional sales and finance, some can be quick to be complacent with the idea that subscription is launched with a click of a button. It is therefore important for automakers and dealers to educate all internal stakeholders on all components of the subscription service for optimum lead management.  

‍3. Setting unrealistic targets and expectations

Since there is confusion as to where and how subscription fits as part of the overall sales strategy, many automakers and car dealerships make the mistake of setting unrealistic targets and expectations. There may either be too much of a high expectation for subscription to solely serve new vehicles; or a low expectation that subscription is a seasonal offering to one-off customers. Failing to find alignment with the sales team and setting may result in missed opportunities across the sales funnel. Some of which can include the inability to timely serve new customers who have been declined finance or providing existing customers an alternative to robustly trial a new car brand through short subscription terms. 

What are the current roadblocks for car subscription?

The roadblocks of car subscriptions have seen many automakers already pivoting their subscription offerings. A number of factors contribute to the current challenges in the automotive industry. 

1. Inability to find product-market fit 

Excited by the idea that subscribers can swap vehicles regularly, early subscription adopters assume this will be the key value proposition. While this may sound enticing, the costs involved may actually deter some customers. It is therefore important to avoid early assumptions and instead serve the correct market segments by providing the appropriate offerings that will maximise their user value.  

2. Overestimating internal core competencies 

As mentioned, the car subscription value chain involves the following:

• Vehicle financing and procurement
• Establishing operational processes 
• Choosing a technology partner  
• Ongoing customer relationship and engagement management  
• Fleet management and disposal 

In an attempt to gain early control of the value chain, automakers and dealers may find it advantageous to take on all core competencies internally and avoid transaction costs from network partnerships. However, Fair’s vertical integration which led to their subsequent pivot away from subscription is a reflection that many functions are indeed outside traditional core competencies of automotive players. 

New adopters of car subscription often underestimate the complexity of setting up technology infrastructure and attempt to establish a bespoke platform. However, stitching together individual software platforms results in lower productivity and poorer outcomes by stitching together individual software platforms.As the pressure to adopt online sales increases, the need for a user-friendly platform that offers configurability and speed-to-market becomes all the more important. New market entrants can benefit from utilising established car subscription technology platforms such as Loopit. 

3. Market constraints 

While achieving high utilisation rates is imperative, the current headwinds in the automotive industry can potentially lead to startups and marketplaces having inadequate vehicle supply to meet ongoing consumer demand. The implication is two-fold. To ensure sustainable growth, subscription providers must either double down on their  vehicle procurement strategies which may involve revisiting current supplier relationships and/or providing new offerings to existing subscribers to maximise their lifetime value 

‍4. Misconceptions of car subscription

Many traditional automakers and car dealers are still fixated with the belief that subscription will cannibalise new car sales and aggravate dealer networks. This idea has been exacerbated by that fact that market disruptors are largely contributing to the overall growth of the car subscription industry, and therefore is seen as a threat to traditional automotive stakeholders. This has resulted in missed opportunities where sales leaders dismiss subscription as an offering for customers who may not be ready for an outright car purchase. Sales leaders must shift away from their aversion and view subscriptions as an additional arm to increase sales, by giving consumers a robust product trial rather than the traditional test drive.