Vehicle subscription services expand

Do you plan to buy, lease or subscribe?

That could be a common question from lenders and dealerships as vehicle subscription services grow as an alternative to car ownership in coming years.

Vehicle subscriptions essentially package car ownership into a monthly fee that includes insurance and requires no long-term commitment. Some services charge thousands of dollars a month for luxury vehicles, while others offer mainstream vehicles for less. Most deliver a vehicle on demand and allow users to switch vehicles based on their needs.

"The industry is really exploring these business models as a means to attract some customers who maybe did not or could not own their own vehicle," said Jeremy Carlson, principal analyst at IHS Markit.

IHS forecasts that "mobility as a service" will grow to represent more than 10 million vehicles sold in 2040 compared with about 300,000 in 2017. A small part of that growth is expected to be subscriptions.

This year, Cadillac launched a pilot subscription service, Book by Cadillac, in New York. This month, Porsche rolled out its Porsche Passport pilot in Atlanta, and Cadillac expanded its service to Los Angeles and Dallas.

"Just like leasing was quite revolutionary in the 1970s but has remained a primary way of accessing luxury vehicles, we hope subscription also has that potential," said Melody Lee, global director of Book by Cadillac.

The Cadillac and Porsche services offer delivery and pickup, luxury touches that the brands hope set them apart and attract new customers. Lee said about 90 percent of Book by Cadillac's subscribers in New York had never owned a Cadillac. Porsche declined to discuss details of its service this early in its launch.

Startups, auto lenders and some dealers also are getting into subscriptions.

One pioneer is Drive Flow, owned by Flow Automotive Cos., a dealership group with 38 franchises in North Carolina and Virginia.

"For us, it was a very natural fit," said Eric Flow, president of management services for the Winston-Salem, N.C., group and Drive Flow. "It's not necessarily a replacement for our core business. It could be over time; it's an additional offering."

Drive Flow, which began operating a year ago, buys vehicles from the dealerships to offer to subscribers. The dealerships also service the vehicles as needed. The two sides work together to determine when the vehicles will be sold back to the dealerships for resale — typically with fewer than 8,000 miles.

"You have to have your pre-owned managers involved in that process because they're going to be retailing those vehicles, and they have to be OK with that number," he said.

Drive Flow began with one tier for $1,499 a month in its home market. It has since added a lower tier with fewer vehicle offerings for $850 a month and launched the service in Raleigh, N.C.

Drive Flow's roughly 100 members use an app powered by Clutch Technologies of Atlanta to request vehicles and tailor each user's preferred vehicles.

Clutch's software and platform power about 10 other vehicle subscription services, including Porsche Passport and other dealership ventures.

The company is seen as a leader in this emerging market and operates its own vehicle subscription service with roughly 600 members in Atlanta that it uses as a test bed for programs with its partners.

Clutch CEO Tripp Rackley says the industry has plenty to learn from how customers use the services and vehicles.

"The world of automotive up until this point has been build 'em and sell 'em," he said. "And build 'em and subscribe to 'em is different."

Rackley compared car subscriptions to cellphone service. "When you capture a customer on subscription, there is no reason for them ever to leave you as their provider," he said. "It's all about providing great service."

That's where dealerships could play a role, managing deliveries and pickups, for example.

Lee said Cadillac has had "rich and productive conversations" with its dealerships about assisting with Book by Cadillac.

Dealers are partners in Canvas, a used-car subscription service Ford Motor Credit Co. acquired last year. Ford dealers in West Los Angeles and the San Francisco Bay Area — Canvas' two markets — service the vehicles in the company's fleet.

"We view the dealers as partners," said Ned Ryan, founder and CEO of Canvas. 'We're totally complimentary to their business."

Canvas helps keep used vehicles out of auctions and gets people driving Ford vehicles who may not have considered the brand otherwise, said David McClelland, Ford Credit's executive vice president of marketing, sales and Asia Pacific.

"At the moment, all I see is upside," he said.

Canvas differs from the other services in that subscribers receive used vehicles — less than 3 years old — and users can only exchange vehicles at the end of the month.

The cost, which starts at about $400 a month, varies based on what vehicle a user selects and decreases the longer they stay in the same car.