By Immanuel Klaiber, fleet – head of princing & TCO for FINN, & Eric Wertenberger, remarketing manager for FINN
There is hardly anything more stress- or anxiety-inducing than uncertainty. When it comes to car buying and ownership, the decision for consumers is a large financial and time commitment, where uncertainty is almost a guarantee. Will they still enjoy the vehicle they choose to drive a year into the future? Will it continue to suit their needs through various lifestyle changes, relocations and even a new daily commute? What hassle might they need to go through (or financial loss) if they desire a vehicle change before any equity has been built up?
Additionally, the financial commitment connected to vehicle purchases has increased. As a result of higher production costs and inventory levels, higher MSRPs for new cars (up 4.8% year-over-year in February 2023 per J.D. Power1) and increased interest rates (average auto loan rate for new cars was 8.41%, up from 5.30% in January 2022 per Kelly Blue Book2), the average car buyer is encountering a reduced purchasing power, thus making lightly used and almost-new vehicles a more affordable choice.
On the dealership level, the uncertainty caused by a lack of inventory of well-maintained vehicles with predictable mileage and condition is also a clear stressor. While a strong base of loyal customers and a healthy supply chain or incentives help drive new car sales and offer dealer flexibility, the car subscription business model and its service providers become a viable alternative toward alleviating this uncertainty.
Car subscription services produce the highest quality, demo-like used-car inventory with little reconditioning costs. Cars are often on subscription for a maximum of 12 months and most vehicles are returned with odometer readings between 5,000 and 12,000 miles. These cars are also within warranty and fit well as CPO cars. Because the cars have also changed hands less, healthy margins can be maintained downstream for positive unit economics upon final sale.
As opposed to a used car from a walk-in or auction, subscribers are all vetted and pass more stringent background checks. Many providers require high FICO credit scores, OFAC and driving violation history to be checked and approved before they can become a subscriber. These drivers take care of their cars!
Most importantly, with a steady flow of subscriptions from six to 12 months in length, subscription providers offer the ability to plan out dealers’ desired inventory months in advance. Many times, the specification of vehicles can be influenced and even pre-sold to dealers at the start of the subscription term. Given that subscription length is set for each and every subscriber, used car stock (and website listings) can be planned down to the day (or even in advance) when additional inventory will be arriving.
As soon as a vehicle comes back from subscription, a Condition Report is completed and immediately shared with the purchasing partners for their review.
The primary intention of the car subscription was to make it easier for a consumer to get into a new car, every year, with an all-inclusive and no-hassle experience. But the byproduct of this innovative new sales method is fostering a closer relationship with a dealer network, always hungry for reliable vehicles to sell.
1: J.D. Power: Total New-Vehicle Sales Increase as Availability Improves; Consumer Spending on New Vehicles Sets February Record
2: Kelly Blue Book: Fed Raises Interest Rates Again, Rocking Car Shoppers
