L.A.'s hot new model? Subscriptions

LOS ANGELES — The Los Angeles Auto Show is the only major U.S. show that isn't overseen by the local dealer association. And this year, it showed, with more automakers promoting alternatives to the basic retail sales model and the American tradition of personal car ownership.

Volvo and Lincoln said they are diving into the business of monthly vehicle subscriptions, which are more flexible than leases, though not necessarily less expensive. Their announcements come on the heels of pilot programs launched this year by Cadillac, Hyundai and Porsche and plans sketched out by Volvo affiliate Polestar and some electric vehicle startups.

The initiatives vary in scale and execution, a sign that although companies are willing to experiment in this area, they haven't yet figured out which model will work best with consumers, how to measure their success and whether subscriptions are ultimately good for business. Also unclear is what role local dealers would play if these programs expand beyond small pilot projects.

In the near term, though, the programs promise a wealth of data about consumer preferences and a modest revenue stream to support other initiatives under the broad umbrella of mobility services.

"Automakers are experimenting with a lot of different models to see what customers will accept or want and how much they are willing to pay for it," said Sam Abuelsamid, a senior analyst at Navigant Research. "The thing about all of these plans is that for the OEM, by bundling, if they price it right, they can also build in some revenue to fund things like ongoing support for software and map updates. While this isn't a big thing today, going forward, it will be more important."

A survey of consumers by technology advisory firm Gartner found that nearly half of respondents would consider using a subscription service for access to a car — and 12 percent would "strongly" consider it.

"However, among people who already use mobility services like Uber or Lyft frequently, the response rate is about double," said Michael Ramsey, research director at Gartner.

"Cost is not going to be the primary motivation for getting people to switch from personal ownership," Ramsey said. "It will be because subscribing is easier than owning."

Lincoln's test of month-to-month subscriptions comes as the brand aims to project a view of luxury that's centered on customer convenience rather than technology or performance. Executives said the pilot likely will start next year in a few cities in California. Marketing chief Robert Parker promised significantly lower rates than similar subscription services from rival brands. (Book by Cadillac charges $1,800 a month; Porsche's Passport starts at $2,000.)

The fee for the Lincoln service will include insurance, maintenance, roadside assistance and vehicle pickup and delivery. Customers can change vehicles every month, and the pricing will depend on the vehicle, although executives declined to discuss specifics.

"Long-term leases will obviously play a role in our overall portfolio, but in the spirit of effortlessness, there is a consumer out there who doesn't really need a three-year lease," Lincoln President Kumar Galhotra told reporters ahead of the show. "We're coming up with a different ownership model for them."

Galhotra said Lincoln will employ the same technology used by Canvas, a similar subscription service run by Ford Credit for used cars.

Volvo last week released pricing details for its Care by Volvo service and took its first subscription order — for a blue XC40 R-Design — during a press conference at the show. Care by Volvo charges $700 a month for that model on a 24-month subscription.

Before the pricing announcement, Volvo said it had 2,000 people raise their hands to try the service.

Though ordering takes place online, Volvo North America CEO Anders Gustafsson said dealers will play an integral role in the service. When a customer selects a vehicle on the Volvo website, the customer is directed to a dealership, which completes the sale and arranges delivery. Maintenance and subscription services also are handled through the dealership.

When Care by Volvo was announced in September, Gustafsson said, about 80 percent of Volvo retailers were skeptical of the service, and he has been meeting with dealers to ease concerns as new mobility technologies and services threaten to disrupt the industry.

"Care by Volvo supports the dealer's value chain," said Gustafsson. "It builds up loyalty to dealers but also with the customer."

The subscription requires no deposit, and the flat monthly fee includes insurance, maintenance and roadside assistance. Gustafsson said Volvo is able to offer a set insurance rate to customers of all profiles across the U.S. through a partnership with Liberty Mutual.

"Everyone wants to simplify, and we handle and balance this all on our own books," he said.

Volvo said it will decide whether to roll out the service to other vehicles depending on the success of the XC40 launch.

Hyundai offers a subscription plan for its Ioniq battery-electric model sold in California as it tries to hook more consumers on the EV lifestyle. But it's looking to expand that program to other cars and its Genesis luxury brand.

The Ioniq subscription is available for a 36-month term for about $300 a month, plus a $2,500 down payment. That down payment can be offset by California's EV tax rebate, and it also includes the first monthly payment.

Users are allowed unlimited miles and are reimbursed for charging costs up to the first 50,000 miles; maintenance and service are also covered.

The subscription plan "happens to be a combination that really has worked for our buyers," said Brian Smith, COO of Hyundai Motor America, "and I would like to figure out how we can offer it in a couple of different iterations. So something for Genesis would look different than what we did with Ioniq."

Klaus Zellmer, Porsche Cars North America CEO, said the sign-up for the brand's small, month-to-month Passport subscription pilot in the Atlanta area has been "overwhelmingly positive."

The early subscribers, who began getting cars in November, are younger and spending more than Porsche anticipated, with 80 percent between ages 25 and 44, and 60 percent opting for the more expensive subscription tier at $3,000 a month, Zellmer said.

Younger people "do not want to engage with a commitment for three years," Zellmer said, adding: "They want to change their phones; they want to change their TV channels. It's all about subscriptions."

Porsche has worked hard to assuage dealers' concerns about where they fit in. Zellmer said he was able to respond to those questions at a dealer meeting in South Africa for the introduction of the redesigned Cayenne.

"I hope that explaining what we're trying to do helps people forget about this typical mistrust between dealer partners and manufacturers that we're trying to bypass them," Zellmer said. "We're trying to learn. That's why it's a pilot."

The projects around the industry will be watched carefully by other automakers, even if they're not ready to jump in yet. Jaguar Land Rover says it's steering clear of subscription services until everyone else figures out whether it's a viable business model.

Lexus officials say they're in study mode, intrigued about the potential to attract younger buyers who are comfortable with putting a lot of their bills on one credit card.

"I think there's just a generation of people who find that it won't necessarily be cheaper, and it may actually be more expensive," said Brian Bolain, general manager for Lexus marketing, "but it's simple."

Katie Burke, Sebastian Blanco, Laurence Iliff, Michael Martinez, David Undercoffler and Amy Wilson contributed to this report.