Moreno, 52, broke apart a 15-dealership group with a total $1 billion in annual sales to pursue mobility and technology ventures. Still, he kept two stores.
Drive Options' model costs $1,475 or $1,875 a month for access to a range of vehicles in Moreno's own 250-vehicle fleet. He spoke with Staff Reporter Jackie Charniga on the viability of subscription services, why he entered the space during a mass exodus and which approach he thinks will come out on top. Here are edited excerpts.
Q: Of the various approaches to auto subscription, which model will be the most successful?
A: Some sort of vendor. I don't think the manufacturers. I think those programs fail because you don't get the variety. Subscription, I think, is predicated on the concept that I don't want to drive just a Mercedes-Benz. If you could only buy Prada shoes, well, Prada doesn't make a great boot for camping.
You're going to have some sort of vendor, like an Uber-type car (hopefully we want it to be Drive Options), something like that that says, we'll own the asset. Then you collateralized it in an easy way. You can go to any kind of collateralization mechanism out there to do it. I think in our case, we floorplan our cars. I think the financing piece of it, the ownership piece of it, is not a big deal.
Last year, Edmunds said subscription services only have a place as a toy for rich people. Do you believe that's changed? What's so enticing about the subscription services model?
All these different kinds of business models are just evidence that the consumer is saying the current model's broken. If everybody liked the current model, you wouldn't see all these different entries all of a sudden attacking it from 19 different angles. A manufacturer making a car, a dealer selling a car to one consumer — that is no longer going to be the paradigm.
No. 2, all new technologies, every single one, start with high-end users only. Every single one. When iPhones came out, they were really expensive. This iPhone I just got was a thousand bucks. Next year, you'll be able to get it free with a Slurpee at 7-Eleven. Even the Internet was a rich person's toy.
No. 3, subscription reminds me of leasing, maybe 30 years ago. The idea that you'd own a vehicle, you drive the wheels off of it and 10 years later, you traded in. That was maybe baby boomer paradigm. Gen X paradigm became, "I don't keep a car that long. It depreciates. I want to have a new car every three years." So leasing made sense. The car companies jumped headfirst into leasing, and then leasing became totally mainstream. But leasing also started as luxury-cars-only first. Leasing didn't start with Fords and Chevys. It started with Mercedes and Porsches.
So why subscriptions?
People are saying technology is changing too fast on cars. I don't want to have a car that's 3 years old like you don't want to have an iPhone that's 3 years old. People are realizing I need a different car for different occasions.
Is subscription going to be the way? I think some form of subscription is going to happen. What ultimately needs to break is the manufacturer margin. Because the dealer margin's all gone. There's no dealer margin. But the retail consumer can buy a car for absolute zero. So you have to break the manufacturer margin and they have to participate in subscription for it to be viable.
Some alternative mobility offerings allow customers to use nontraditional forms of payment for vehicles. For example, AutoGravity's recently launched Turn subscription service allows customers to put one single car payment — which includes maintenance, ownership fees and auto insurance — on a credit card. Do you think that lenders will have to evolve and change or that if they just stick to their core, there will be enough to go around?
That will be a dying business. If you think about the newspaper business ...
Ouch.
But yes, it is! [If a publication stops printing newspapers], it still provides news. You have to look at your model and say, "Is your model to print ink on paper, or is your model to provide information to readers?" It happens over a period of time. Why people went from paying cash or financing to leasing is the same reason why they're flocking to subscription.
You have so many more dynamic choices that the idea of keeping a car three years seems like an eternity. It just doesn't make sense. Even the iPhone's gotten to a model where you don't buy it, anyway. You pay a monthly fee and they just replace it. That's what the millennial generation is all about.
A traditional finance company looks at their life and says, "Our job is to provide car loans." That would definitely be a dying business.
So what about dealerships?
The car companies right now are obsessed with facilities. That's the problem. For example, the dealership, the Porsche dealership I just sold in North Olmsted, [Ohio,] the guy I sold it to spent $2.5 million remodeling the building. I mean, it looks nice. It won't sell one more car. Won't make one more client happier. It's basically the exact same experience, just a little bit cleaned up and nicer.
Is it worth $2.5 million? No. At the same time that Porsche forces a $2.5 million facility, they mandate a $200 website. So you ask the consumer, what do you want? The manufacturers are investing in the wrong things.
If I were the chairman of the board of General Motors — my lifelong ambition — I would pivot General Motors into a transportation services company. That's what they should do. Here's a range of vehicles. You don't own them; we own them, and we just provide you transportation from ride-hailing to subscription, on and on. That's where the future is.
David Muller contributed to this report.
