Car Subscription Insights: Interview with Monitor Deloitte

Car subscription is booming. The number of stakeholders active in the field is growing, and so is the size of their fleets. At the same time, the business models of operators are constantly evolving and seeing new innovations. That is why INVERS recently launched its first edition of our Mobility Services Barometer; a free-of-charge, 42-page report that helps car subscription operators quickly understand key market dynamics, insights, and trends.

This first edition of the Barometer highlights recent findings from the Automotive Mobility vertical at Deloitte. Therefore, we are happy to sit down with two of their leading car subscription experts, Ingo Schmuckall, and Christopher Hemberger, for this interview.

How does car subscription stand out in the VaaS market?

Changing customer demand towards usage-based products rather than ownership has a significant impact on the future profit pools of OEMs. These are currently – more than ever before – being threatened by new players.

Consequently, profit pools are shifting from one-time sales towards customer-centric and data driven mobility services. Subscription plays a pivotal role as it fills the gap between leasing and rental in the traditional product portfolio. It’s also an instrument that works well to boost the electrification of the OEM’s fleet by letting customers experience new technology without needing to commit to buying it.

What is your VaaS projection for the future? How could the market develop in Europe?

The EU subscription market environment was and still is very dynamic. Looking back a few years, various new players were entering the market, followed by a wave of consolidation driven by players like Cazoo.

Simultaneously, global supply chain issues, the semiconductor crisis and the war in Ukraine put massive pressure on the sourcing of fleet cars for new entrants as well as incumbents. Nevertheless, we see incumbents in a good position due to their strategic advantage of combining subscription with traditional auto financing products to maximize asset utilization rates of the overall fleet – besides other factors like existing brand recognition, financial resources, etc.

We currently observe that the trend from ownership to usership accelerates even faster than initially predicted. The vibrant subscription market clearly indicates the viability of this business model. The market is evidently moving away from an “early adopter” towards a “early majority” stage. Hence, the crucial question for all players now is how to win the race in this dynamic and competitive market.

We will take a closer look at that question in our next Point of View “Subscription Decoded” which will be published in September.

How would you describe the role of asset-light vs. asset-heavy business model implementations in the European car subscription business?

Generally, there are these two different fleet approaches which are highly connected to the overarching sales strategy or more broadly the strategic rationale. Strategies vary even within the competitive basket of OEMs, resulting in different routes to markets.

Volvo with Care by Volvo as an example, is going for an asset-heavy approach which means that the vehicles are on the balance sheet of the OEM/automotive finance companies (Captive) and are centrally managed. Done right, this has the benefit of optimizing the vehicle lifetime value and overall fleet utilization. But it also comes with higher complexity regarding required capabilities like in-house technology stack and its integration into the core IT architecture as well as operations including fleet management and remarketing.

Ford on the other hand, took the asset light route: they are leveraging the dealer network. Together with a third-party provider (in this case Fleetpool Group), Ford makes available a platform for their dealerships to offer (idle) stock to customers in the form of car subscription. Consequently, the vehicles are not on Ford’s balance sheet but on the dealers’, who absorb the residual value and utilization risk. This is a potentially quicker route to market for OEMs and their Captives, but it comes with lower margins due to platform fees in an already low margin business (compared to leasing). It obviously also does not have the potential to optimize overall vehicle utilization and consequently vehicle lifetime value.

As mentioned in the beginning, there is no right or wrong answer to the question of which approach to take, as it strongly depends on the strategic rationale. But put simply, if the ability (financially and organizationally) exists to go with the asset-heavy approach, then the operator will enjoy a future-oriented way to capture the full revenue potential of the promising subscription profit pool.

Let’s look beyond Europe. How is your perception of the market development beyond this continent?

Subscription is on the rise not only in Europe, but also in other big markets like the US. Besides emerging local players, we observe European players like SIXT or FINN entering or already scaling their US business. Similarly to Europe, EV transition is accelerating in the US, accompanied by massive investments into charging infrastructure by public and private entities. This will also boost the growth of subscription offerings in the US, since we know that subscription in combination with an EV offering works exceptionally well. The value proposition of subscription in the US is largely in line with Europe: digital and convenient, hassle-free and transparent, etc.

Nevertheless, our market insights show that from a customer demand perspective, there are differences. Whereas convenience is the dominant product feature of subscription both for Germany and US, flexibility is comparably less important for US customers. A selling point in the US is the ability for customers to swap the vehicle during the contract period.

Further insights into car subscription

Thank you, Ingo and Christopher, for the great chat and this insightful interview.

For more information and interesting findings about car subscription, we encourage readers to check out our INVERS Mobility Barometer on European Car Subscription or the above mentioned Deloitte study “Vehicle-as-a-Service: From vehicle ownership to usage-based subscription models”.