Who will order car subscriptions?
Vehicle subscription services are emerging as a new slice of the car-sharing market, and industry leaders are still trying to figure out which model will work best: one aimed at the low-end subprime market, or high-end consumers who want to be able to drive the fanciest thing on the road. Or maybe the market will land somewhere in the middle or somewhere else entirely.
Cox Automotive COO Mark O’Neil believes that there will be some demand from consumers for the flex subscription model, allowing customers a third option besides simply buying or leasing cars. So the company is hedging its bets, making ties with two pilot subscription models for mobility services that target very different market segments.
Clutch, backed in part by the Cox Innovation Fund, aims at the high end of the market. Flexdrive, a joint venture between Cox and Holman Automotive Group Inc. of Mount Laurel, N.J., has found a niche in the low end. Both promise dealerships a steady revenue stream instead of the one-time revenue of a car sale.
Here’s a look at each.
|Cox Automotive is backing two vehicle-subscription services. Here’s how they differ.|
|Vehicles||Luxury and near||Used; mostly 2-3 years|
|Change vehicles||As often as desired||As often as desired|
|Enrollment rules||Age 21, valid license, clean driving record required||Age 25, valid license, no credit check; clean driving record|
|Fees||$ 250 to join; $ 1,450, $ 950, or $ 450/month||$ 150 to join; then weekly or 28-day fees vary by vehicle|
|Available in||Atlanta; Winston-Salem||Atlanta; Austin; parts of N.J.|
Flexdrive’s mobile app allows consumers to look up and book vehicles — generally off-lease ones — from dealership inventories for weeks or months at a time with no down payment or long-term contract. Users can swap vehicles at any point, and turn off their subscription for a week if they will be out of town. There are additional mileage fees after the first 300 miles per week, but no mileage limits.
Cox developed Flexdrive’s underlying technology in 2014. It was the first subscription option for Uber drivers, promoted in partnership with Uber. It was piloted at a handful of dealerships in Atlanta and Austin, Texas, and evolved into a joint venture with Holman in early April. Holman wants to take it nationwide, working with other dealership groups.
Flexdrive’s offerings in Atlanta have included a 2013 Ford Fusion for $ 219 a week, a 2013 Acura TL for $ 259 a week and a 2013 Toyota Avalon for $ 279 a week. The pricing includes insurance and maintenance.
Prices of $ 200-$ 250 a week are “not too far from what many Americans pay in a buy-here, pay-here deal,” but above the average car payment of $ 400-$ 450 a month, said Joe George, senior vice president of Manheim vehicle advantage. A lot of drivers use these cars for Uber or Lyft jobs, he said.
Not requiring a credit check “definitely skews” the membership ranks, George said. Half of the test’s subscribers so far have credit scores below 580, which put them in the subprime category by most measures.
But that could change in a year or six months, said David Liniado, vice president of consumer mobility at Cox Automotive.
For dealerships, the subscription model offers “multiple profit pools,” Liniado said. “The customer is paying in one price for maintenance, service, roadside assistance,” he said.
Flexdrive offers dealerships an outlet for the rising number of off-lease vehicles coming to market. “Demand always outstripped our supply, throughout the pilot,” Liniado said.
Clutch was formed in the second quarter of 2014 and became operational in partnership with Atlanta-area dealerships a year later. It currently has just under 600 consumers in Atlanta driving roughly 650 vehicles, representing 19 automotive brands.
Subscribers flip vehicles — Clutch’s term for swapping one ride for another — about 2.5 times a month, turning in, say, a commuter car for an SUV for a weekend of camping.
The frequent changes validate the service’s premise, said Clutch President Vince Zappa. “It means people care about having variety and flexibility,” he said. “If someone sits in one car too long, paying a premium [for Clutch], why not just go buy the car?”
Subscribers range from folks in their 20s to families and empty nesters. “We’re a monthly, not a weekly rental-oriented service, [for] people who want a car every day of the month,” Zappa said.
But he says the main difference from Flexdrive is not Clutch’s membership but its business model.
First, Clutch members don’t pick a vehicle. Rather, the website promoting the app asks a series of questions and then suggests a car, just as Netflix recommends movies to its subscribers.
“If we can understand what you like and don’t like, if you have kids, their ages, when’s spring break for you — we can get a picture of how to serve you really well,” Zappa said.
Second, Clutch will offer its platform to dealers and automakers. “Our intent is not to be the operator. We are merely the tech provider,” Zappa said. “We’re absolutely happy if nobody knows the Clutch name.”
For example, Flow Automotive Inc., a Winston-Salem, N.C., dealership group with 38 franchises selling 19 brands, uses Clutch’s platform for its own subscription service: Drive Flow. The Drive Flow website shows Audi, Land Rover and BMW vehicles.
As members flip cars, Clutch learns “what their interests are, what they like in color and brand,” Zappa said. And dealerships “move from a transactional relationship to an ongoing relationship.”
Shiraz Ahmed contributed to this report.
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