22 Aug 2019
The benefits of monthly car subscription program have been well documented and broadly promoted for drivers. We inevitably hear the words Choice, Flexibility, and No Commitment when vehicle subscription programs are mentioned. What about the benefits to dealers? Surely, there must be a way for dealers to participate in the benefits of vehicle subscription, yet we rarely hear these benefits discussed, especially in the context of the OEM subscription programs.
Where Does the Dealer Stand?
A car dealership is a retail business. Fundamentally, a retail business purchases goods at a wholesale cost and provides value-added services to sell these goods to retail customers, realizing the spread between wholesale and retail pricing at the time of sale. In recent years the decrease in gross profit margin on each vehicle sold has been at least partially offset through the sale of backend F&I products, including warranties, gap insurance, etc. On the surface, a subscription program may not seem to fit the traditional dealership retail model. Dealers understandably want to sell cars, trucks, and SUVs, and the subscription model disrupts this convention without the dealer benefits being immediately obvious. So how does a dealer profit from subscription programs?
The Revenue Model for Subscriptions
We all know that incremental revenue with minimal increase in marginal costs increases profits quickly. It's the reason that add-on business is so valuable. Subscription services executed well allow dealerships to leverage fixed assets to generate more revenue. Existing facilities, inventory, administrative, sales and service channels can readily be utilized to provide subscription services to new customers. Many dealerships have successfully run rental pools and car subscription provides a more seamless, all-inclusive dealer and customer option by bundling insurance, maintenance and roadside assistance in a digital platform that subscribers access through their phones and dealers manage through web and mobile device interfaces.
Inventory Management Options
Loaner fleet programs have become a valuable tool for some dealers to meet sales goals. Subscription car programs can provide a good outlet for an excess loaner fleet inventory and a good management tool for existing fleets.
The ability to cash flow aging inventory to potentially offset floor-plan curtailment payments and stage vehicles into wholesale auctions can minimize losses on dead or excess inventory, while providing incremental income.
Building Customer Relationships
There are other less tangible benefits to dealers that are worth mentioning. Subscription vehicle programs also introduce new customers to dealers, resulting in valuable conquest business. Besides bringing in and retaining new customers, dealers are building stronger relationships with their subscription customers. Car swaps and regular maintenance of subscription vehicles result in customers visiting dealerships more often which provides additional opportunities for positive dealership experiences.
Finally, monthly car subscription programs provide an extended test drive option for drivers not ready to commit, providing dealers a way to maintain a customer's interest until he or she is ready to make a purchase decision.
Overall, subscription services can be a powerful asset to dealers that want to capture the consumer that values accessibility over ownership, or isn't quite ready to make a purchase decision. Subscription is best viewed as a new path to ownership and not as a threat to the traditional dealer retail model. Mobiliti looks to assist dealers in entering this space by providing the platform they need to reach these customers.
Mobiliti Car Subscriptions: A new option for a new generation.
Learn more about how subscription can help you connect to new buyers and drive higher profits