As automakers and their captive finance companies flee the subscription space, third-party software vendors are staking claims.
Approaches such as Turn, the recently launched subscription service of auto financing software company AutoGravity, may offer a workaround for automakers still interested in subscriptions.
Backed financially by Daimler AG and Volkswagen Financial Services, the model allows automakers to experiment with subscriptions without risk that the asset-heavy venture will drain capital. Miekie Liebenberg, AutoGravity's vice president of business development, told Automotive News that automaker forays into the subscription space have failed because the practice goes against their main objective — selling new vehicles.
"When you're dealing with new cars, there's a lot of intricacies in what happens to that vehicle. The car is only new once. It's not something that is necessarily sustainable, and it is very costly," Liebenberg said.
Prohibitive pricing on new-vehicle subscriptions is also slowing adoption. The niche for Turn? Targeting consumer needs at the end of the leasing cycle.
When a car comes off lease, it might not be at the optimal value, or at the optimal time, to enter the used market. Particularly after launching a new vehicle, automakers will drive off-lease prices even further down if the bulk of those units end up in the auction space, Liebenberg said. Circulating vehicles in a subscription model, and monitoring the residual values all the while, will help get the maximum value from off-lease vehicles.
"Therefore, it is the opportune time to look at something that can preserve that residual value of the vehicle by disposing of the vehicle at the correct time to the marketplace and ensuring that the values are protected," Liebenberg said.
He added: "It all boils down to, how well do you manage that fleet of vehicles? Here at Turn, we put a lot of effort and focus [into] ensuring we manage our fleet appropriately."
Here's how the service, available in California, works: A customer applies for a subscription, browses inventory sourced from local dealerships and reserves the vehicle he or she is interested in. A credit card is charged for the monthly payment, which covers the subscription fee, roadside assistance, collision insurance and bundled maintenance plans. The payment ranges from $250 to $850.
AutoGravity has launched real-time inventory for new and used vehicles from dealership groups nationwide so consumers can browse. Down the road, Liebenberg sees the potential to source off-lease vehicles directly from automaker fleets.
Other third parties, such as Cox Automotive-owned Clutch Technologies, furnish the technology for subscriptions. More than 40 dealers and automakers, including Mercedes-Benz, Porsche and BMW, use Clutch's back-end platform for subscription services.
Subscription provider Flexdrive, which creates technology for subscription fleet management and financing, operates a fleet of more than 16,000 new and used vehicles for one of its commercial partners, according to a spokesman. Flexdrive's tech is operating in 41 independent and franchised dealerships in the U.S.
Flexdrive, co-owned by Cox and Holman Enterprises, partnered with its first auto lender, Hyundai Capital America, this summer.