NextCar, a startup aimed at helping vehicle subscription providers achieve scale and profitability, said it has signed a letter of intent to partner with auto lender Westlake Financial as it builds out its platform.
The partnership between NextCar — started this year by Scott Painter, the founder and former CEO of used-vehicle subscription platform Fair — and Westlake will include a $400 million debt facility and an agreement by Westlake to handle origination and servicing, according to the two companies.
Painter said the debt facility is not an equity investment into NextCar, but rather financing from Westlake that will help NextCar acquire vehicles from dealerships participating in a subscription program. NextCar will hold vehicles on its balance sheet on behalf of a customer-facing subscription provider once a consumer selects one from a participating dealership. When the subscription period ends, the vehicle would come off NextCar's balance sheet, he said.
"Debt and equity are how we are going to grow the subscription business," Painter said. "While it's true that you could use equity to buy cars, we think it's far more efficient to use debt for that piece of our business. This certainly does give us capital to be able to grow our business."
Painter stepped aside as Fair's CEO last year and told Automotive News when announcing NextCar this fall that he had been quietly working since March on the new software-as-a-service platform.
NextCar is not intended to be a consumer-facing subscription provider like Fair, Painter said, but rather a company that provides services to help subscription providers operate, such as debt capital, insurance, access to inventory, maintenance capabilities, fleet management and digital servicing. The goal is to help vehicle subscription providers grow and become profitable by removing some of their risk, such as having to build technology or manage complex balance sheets, he said.
NextCar essentially will operate as a vendor to subscription providers, Painter said. He added that NextCar would supply a "turnkey solution" for subscription providers, including established players, automakers or affinity organizations that work with an automotive customer base.
Vehicle subscriptions generally bundle options such as roadside assistance, limited warranties and routine maintenance into a monthly payment. Painter said they also are transactions that can be completed entirely digitally.
Westlake said its partnership with NextCar is its first foray into vehicle subscriptions.
"We do originate loans from subprime to prime, but we also are originating leases now, so subscription seems like a natural fit," said Ian Anderson, group president of Westlake Holdings, of which Westlake Financial is part.
"Our focus really is on all product lines for the driving experience of a customer and helping dealers," Anderson said. "This adds another product to the equation."
Westlake will bring its experience with underwriting and servicing to NextCar as it builds out its subscription technology, along with its existing dealership network, Anderson said. Dealers, for instance, could choose to add subscriptions to the financing and leasing options they offer to customers, he said.
Painter has declined to share details of the amount of capital NextCar has raised to date or details about its investors, leadership team and partnerships beyond Westlake. More information could come in early 2021, he said.