From a business perspective, subscriptions aren't seen as lucrative. The model is capital-intensive and asset-heavy with razor-thin margins. In fact, a subscription works best for an automaker the more closely it resembles a traditional lease, says Ford Credit CEO David McClelland.
"It's just basic economics. If you go through all the cost of onboarding the customer and they stay for a month, it's not a particularly attractive proposition," McClelland told Automotive News. "You've got to find a way to supply this vehicle at a very, very narrow margin, and then it all pivots around how long the customer stays. The longer you keep them — the more it looks like a lease — the better it is."
After years of working with used-vehicle subscription startup Canvas, Ford Credit sold the platform to competitor Fair in September.
When Ford Credit acquired Canvas in 2016 and activated the service the next year, the intention was to operate it as a laboratory for alternative ownership, McClelland said.
But divergent business goals prevented the companies from moving forward together. Canvas wanted to expand its offerings outside the Ford brand family, McClelland said, while Ford Credit's motivations are to support Ford and its product line.
"For the business model, specifically for Canvas, to have been successful, it needs to be at significant scale. And outside Ford and Lincoln, I wasn't that interested. It's really hard, as you can imagine, for me to stand in front of [the] dealer council and explain financing a whole load of Nissans," McClelland said.
However, for any alternative vehicle ownership model to become successful, it requires the same work and maintenance that captive finance companies have excelled in for decades, McClelland said. The fundamental financial services that are the core competencies of captive finance companies — managing billings, providing customer service, processing payments and performing collections and underwriting — are essential to any vehicle ownership process.
Lender experience in profitably maintaining vehicle ownership models is why McClelland considers returning to subscriptions a possibility. Offering flexibility and choice to customers is still worth striving for.
"We've learned enough that if we believe that we want to do something with subscription, we can do it. It is a little bit niche," McClelland said. "I still wonder if there's not another way to consider providing this flexibility for customers ... how many more ways to play with the lease as a construct."