Automakers' New Pitch: Don't Buy This Car, Try A Subscription

To a populace increasingly accustomed to Lyft, Uber and Zipcar, 'subscribing' as a means of car ownership now makes greater sense due to lower costs and less hassle. JL

Stefan Nicola reports in Bloomberg:

Automakers say selling cars via subscriptions can help them stay relevant for a younger generation raised on ride-hailing and car-sharing. Volvo's strategy of steering drivers

toward “subscriptions” (is) akin to streaming services such as Netflix or Spotify. Customers pay a single monthly bill that covers various fees and repairs—a plan that Volvo expects to account for half its output by 2025. “It’s very transparent, a hassle-free way of having a car.”

Auto ads are nothing if not predictable, trumpeting the design and comfort of the latest models and urging customers to rush to the showroom. But in Germany, Volvo’s new campaign says “Don’t Buy This Car.”
Although the tagline sounds like it was drawn from the “never do this” lecture in Marketing 101, it fits with Volvo’s strategy of steering drivers toward “subscriptions” akin to streaming services such as Netflix or Spotify. Customers pay a single monthly bill that covers various fees and repairs—a plan that Volvo expects to account for half its output by 2025. “It’s very transparent, a hassle-free way of having a car,” says Volvo Chief Executive Officer Hakan Samuelsson. “You know exactly what it costs.”

A German ad for Volvo’s subscription service reads: “Don’t buy this car. Subscribe to it.”

Source: Volvo Cars

After limited trial runs in the U.S. and Europe over the past year, Volvo in October introduced a nationwide program in Germany, with subscriptions to virtually all of its models. The monthly cost ranges from €498 ($561), for a basic version of its XC40 compact sport-utility vehicle up to €929 for a top-line XC90 SUV with alloy wheels and Nappa leather upholstery. Volvo says a subscription differs from a traditional lease in that there’s no down payment or end-of-lease fee, and the price includes insurance, taxes, roadside assistance, and services such as pickup from your home and mounting and storing your winter tires.

Volvo isn’t alone in trying subscriptions. Ford Motor Co. offers cars in San Francisco and Los Angeles starting at about $405 monthly before taxes. Porsche, Mercedes-Benz, and Cadillac all let drivers in select cities swap out high-end models multiple times a year for roughly $1,000 to $2,000 a month. And Li Shufu, the Chinese tycoon who bought Volvo in 2010, is offering subscriptions via a new brand called Lynk & Co. that targets younger buyers.

The programs highlight efforts by carmakers to stay relevant for a generation raised on ride-hailing and car-sharing and poised to embrace self-driving vehicles. In Britain, only 30 percent of 17- to 20-year-olds have driver’s
licenses, down from almost half in the 1990s. And Volvo says that in U.S. tests of the subscription model, drivers averaged 40 years old, a decade younger than the brand’s customers. “The car isn’t as important to young people as it was in the 1980s or ’90s,” says Jan-Philipp Hasenberg, a partner at consulting firm Roland Berger. “Subscribing to a car is a convenient way to have one without the financial risk.”

The downside for drivers is that car subscriptions are more expensive than buying or even leasing. In Germany, a lease on a new XC40 starts at about €300 a month—40 percent below the subscription price. Automakers will need to do a lot more advertising to get most consumers to accept the idea: In a recent survey by management consultant Oliver Wyman, only a quarter of Germans and 14 percent of Americans said they would subscribe to a car, and fewer than half of those interested in the idea said they’d pay more than about €500 a month. Even at those prices, offering concierge-like services such as tire changes and drop-offs will make it tough to turn a profit, says August Joas,

head of Oliver Wyman’s global automotive practice. “Adding everything together, I don’t think this is a great deal for the customer or the company,” he says.

Source: Volvo Cars

Yet what Volvo will get is continuing ties to customers. It won’t have to wait years for buyers to decide to stick with the Swedish brand when it’s time for a new set of wheels. And subscriptions will yield rich data on driving habits, sharing preferences, and wear and tear that could lead to additional services. Already the carmaker has teamed up with Amazon.com Inc. to deliver online purchases to the trunks of Volvos in parking lots in the U.S., Sweden, and Switzerland. “We’re going from being a wholesaler to being a direct business partner,” says Samuelsson. “It’s a very good way of building customer relations and securing business over a longer time.”

Felix Müller subscribed to three black XC40s for himself and his three employees at Techrunners, a startup near Cologne that trains service workers for cable companies. Müller, who spends about 15 hours a week driving to clients, says the price doesn’t put him off because he can end or alter the subscription in two years. And the service package means there’s no need to invest in fleet management, so his consultants don’t have to skip out on work to take cars for repairs. “I have the same bill every month, which gives me planning security for my budget,” he says. “I don’t need to worry about anything.”

BOTTOM LINE - Automakers say selling cars via subscriptions can help them stay relevant for a younger generation raised on ride-hailing and car-sharing.