How Subscription Services Can Create More Predictable Revenue Streams for Your Dealership – Vince Zappa, Clutch Technologies

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The buzz surrounding car subscription services in 2018 has continued full speed ahead into 2019. With more millennials looking for alternative vehicle ownership options, and the appeal of not being tied down to one car, subscriptions services are only expected to increase in popularity this year. On today’s show, Jim speaks with Vince Zappa, president of Clutch Technologies, a leading consumer subscription software provider for the automotive industry.

VIDEO TRANSCRIPT:

Jim Fitzpatrick: Welcome to the show Vince.

Vince Zappa: Thank you Jim. Thanks for having me.

Jim Fitzpatrick: Sure. So, you guys have your hands on all things subscription and I know there are a lot of dealers that are watching right now going, well, we haven’t jumped in yet. So, we’re anxious to see what Vince has to say. Give us the update as to where subscription is right now, maybe where it’s been, where it is now and where it’s headed for dealers.

Vince Zappa: Yeah. You know, our customers are dealers and the automotive dealers are whole dealers and OEMs. Most of our customers, they are dealers. For us, weakening subscription, it’s still an early market in many ways, however it’s really beginning to take off. As you see, the proliferation of services all over the country. As a company, we have quadrupled our customer base in less than year.

Jim Fitzpatrick:: Oh my, quadrupled it?

Vince Zappa: Quadrupled.

Jim Fitzpatrick: Wow.

Vince Zappa: Right?

Jim Fitzpatrick: You guys must be busy.

Vince Zappa: We are very busy. We are seeing where as a year or two ago, we saw small pilots. We’re now beginning to see larger discussions of larger role outs with both dealers and others across the country.

Jim Fitzpatrick: Sure and with dealers now with the pressure of front end compression, of margins and looking for new revenue streams as well as getting more cars over the curb, also to get vehicles back to the fixed ops department. Obviously, that’s still a struggle for dealers. This answers a number of those different things, right?

Vince Zappa: It does, yeah. We think subscription as a system activates a continuous stream of cars moving through and being supplied to the dealers’ consumers on a recurring basis. So, most dealers today don’t make a whole lot of money as it relates to a new car sale. This is nothing new, however it’s all made in both incentives and financing, etc., down the line. We think that subscription actually accelerates that and makes it a  overtime. In many ways, it’s almost an [alagust 00:02:03] to how we, I think the software industry thought about selling software to subscribing to software. I think there’s actually an analogy to that whereas it will take time, but I think we’re seeing the beginnings of the industry moving to, at least parts of the industry moving toward a more recurring model, recurring revenue model-

Jim Fitzpatrick: Which is very exciting.

Vince Zappa: Which I think is really interesting and creates all kinds of opportunities for dealers in the industry to create new products and services even outside of just subscription.

Jim Fitzpatrick: Sure and it really requires the dealer to think more about their dealership in the mobility ecosystem than just the transactional I’ll sell you a car, you’ll have it serviced, you’ll trade it in, hopefully you’ll buy another car from me. This really doesn’t break that model, but it certainly adds to it in a big way, right?

Vince Zappa: It adds incredible, we believe incredible efficiency. We’ll call it a factory, essentially. There’s now an ecosystem and a factory that dealers when they begin to kickstart this and get it to a point where it has some scale to it and internally, their operations, everything starts to orient around it a little bit more and it creates a very predictable stream of new cars. New cars or used cars coming into the subscription program, running through all of the operational functions of delivering the service and then ultimately exiting. The cycle starts over and over-

Jim Fitzpatrick: Sure.

Vince Zappa: …The customer needs

Jim Fitzpatrick: Yeah, today I bet some of your clients are your early adopters are coming in and saying, “Hey, we want to be on the forefront of this,” but there’s going to be a day where I would predict that if a dealer is not in some sort of a subscription model and in deep, they’re going to watch the industry pass them by, correct?

Vince Zappa: I think so. I think that I don’t know when that’s going to be. We always have prognostications in any industry that tomorrow the world is going to change.

Jim Fitzpatrick: That’s right, it’s all going to be autonomous vehicles, right?

Vince Zappa: Right. The reality is, the world does in fact change. You just don’t know it’s necessarily changing right underneath you and sometimes you wake up and you wonder, “Whoa, that went quick.”

Jim Fitzpatrick: Yeah, how did I miss that?

Vince Zappa: How did I miss it? I think that we are seeing a lot of forward thinking dealers right out of the gate say, “I want to create a different relationship with my consumer that aligns with how their consumers think about their spending in general.” I’ve said this many times. Today, the consumer, the auto industry asks the consumer to make one big decision every few years. In essence, would they demand that the consumer match their life to the transportation? Our perspective is maybe a little different, which is can we actually have the transportation match the consumer’s life?

Jim Fitzpatrick:: Yep, very good point.

Vince Zappa: And I think that’s a really interesting, as the industry orients itself, dealers in particular who have a right to offer a service like this by being the local provider, beginning to orient themselves that they become a service provider. Right? And I think it opens up a tremendous amount of other opportunity that we may not even understand yet down the line-

Jim Fitzpatrick: That’s a good point.

Vince Zappa: Yeah.

Jim Fitzpatrick: Yeah. So, you guys are kind of one of the leaders out there. In fact, I think you are the leader with Clutch Technologies and obviously it’s a Cox Automotive Company. So, you’ve got this incredible think tank and mind trust going on over there that I think we’ll get it right. That’s for sure. That being said, tell us about some of Clutch’s new product offerings and I know that you’ll be rolling some of these out at NADA.

Vince Zappa: Yeah. So, we’re announcing our platform as a multi-product platform. We’ve started our DNA as built around the notion of a multi-vehicle subscription service. The one that we’ve been able to add new customers into very quickly over the years and that’s what subscriptions known for. Over the years, we’ve had some of our customers say, “Can you do this? Can you do that?” Slight derivations or even pretty interesting just completely new products built off the same platform.

Jim Fitzpatrick:Wow.

Vince Zappa: So, we’re adding and announcing. We’ve been doing this with some of our customers already unannounced, but we’re actually announcing single-car subscription, which actually we announced some time ago, but we’re formalizing it even further in this agreement. On demand rentals as a component of our platform. What we call fractional subscriptions and we can step through any number of these on and on.

Jim Fitzpatrick: Yeah, very exciting.

Vince Zappa: And this is all driven by demand that we see in the market coming from our customers, the dealers and we think the vision as a company, the vision of Clutch is to essentially optimize transportation, a shared fleet of vehicles to consumers.

And that can take many different forms. The products that are used to optimize that fleet to the consumer, deliver a great experience to the consumer and efficiency with the dealer is what we really do as a platform.

Jim Fitzpatrick: Sure and it’s interesting that you’re getting some of your best products are coming out of the real needs of your clients coming back to you and saying, “Hey, if you can tweak this service this way and that way,” I mean, you guys are nimble enough to be able to do that, which is really cool because it’s real world stuff that dealers are saying, “No, this is my need over here. Can you tweak it enough?” And it sounds like you have.

Vince Zappa: Yes. I’m glad we have a large staff of engineers, that we’re a software company and we built, we think we solved the harder problem first, which is multi-car subscription. Being able to deliver a service that delivers an ultimate experience to a consumer and balancing that the needs of an operator if you will in the right way in multi-car’s extremely complicated. There’s a lot of moving parts to that. That set us up very easily to come back on the other side and deliver a wider range of products that are in many ways easier to deliver once you’ve already built this core and so, that’s how we, it’s an expansion of our platform. Literally.

Jim Fitzpatrick: Yeah, really. It sounds phenomenal. Let’s talk a little bit more about the clutch subscription platform. What new services does this include?

Vince Zappa: Right. So, we’re announcing a fractional subscription. Now, people always say, “What is a fractional subscription?” And there may be a better name for it in the future, but that’s how we’re thinking about it that way. Essentially, imagine there are use cases that exist especially for specialty vehicles. Think of EVs, the penetration rate of EVs from a sales perspective across the country, a little over one percent. Primary reasoning behind that is range anxiety. Now, our theory is if a consumer wants to go by an EV car, fantastic. However, as an industry, we’re not seeing adoption of those cars because of the range anxiety. Let’s pair at the point of purchase, let’s pair an access to a pool of vehicles that you can use a buyer of an EV car and at hock basis, you have a right to use with your local dealer-

Jim Fitzpatrick: Just took the anxiety away.

Vince Zappa: The anxiety’s gone.

Jim Fitzpatrick: Right.

Vince Zappa: And you do that at a cost effective price point. Again, the dealer has this notion that they have a shared fleet of cars that conserve any number of use cases and now they’re able to more efficiently monetize an asset that maybe they wouldn’t have been able to otherwise.

Jim Fitzpatrick: Yeah, that’s right.

Vince Zappa: So, that’s just one example. A great example, it’s not a dealer, but a great example of exactly what we’re doing here and this is information that has been shared publicly, Porsche Passport, we power Porsche Passport as a-

Jim Fitzpatrick: Okay, didn’t know. Okay.

Vince Zappa: Yep. Our platform is powering that.

In addition, Porsche launched in Atlanta Porsche Drive, which is an on demand rental product. Interestingly enough, our platform is powering that and so, this is an example of this product. It’s actually optimizing across a shared fleet, the allocation of cars to subscription providers and at hock on demand rental.

At the same time. So, instead of, we had a lot of dealers say, “Vince and Clutch, this is great. We already have a loaner pool. We already have a rental pool. You’re asking us to go build a subscription pool.” This is over many years and we said, “Well, why don’t we just make them more efficient? That’s what we already do. Let’s join these instead of having this automotive cast system where we put a car in one bucket and move along.”

Jim Fitzpatrick: Sure, very cool and this extended test drive.

Vince Zappa: Yeah. Another very interesting thing that came from our, a lot of our dealers use our product today in this way, which is you know, for dealers who think, “I don’t want to move to subscription. I feel like it somehow is threatening to buying or leasing.” Our point of view is that absolutely is not the case. In fact, what many of our customers do today is they supply subscription as a temporary test drive product. Across our base, the last numbers I have were we have test drive users to test drive across the Clutch network for about three months and pay close to 2500 bucks to do that.

And so, what happens in that case is now, as a consumer, I’m able to go and tell a subscription provider, a dealer that I want to drive every SUV you have at a certain price point or I want to drive a variety of a different brand, whatever that makeup may be and it allows the dealer to curate an experience that ultimately ends up with a sale.

And I think that is and they monetize it along the way. Again, there’s a shared fleet in play, right?

So, if you’ve got multiple products working against this shared fleet, you don’t have to put all of your bet into test drives. You don’t have to put all your bet into on demand-

Jim Fitzpatrick: And if you’re a consumer and you’re ready to pull the trigger on a 50, 60, 70, 80, $90000 SUV, then it makes sense to do this first, right? I mean, all too often, people get in a car and go, “Ah, I really needed the extended body. I didn’t realize it because I didn’t live with the vehicle. Maybe I need the shorter version or a bigger one or maybe I need to back the third row seating and I didn’t realize that.” So, this answers that. Plus, from a customer service standpoint and reviews, I would imagine that customer’s going to go back and go, “Wow, this is a really cool way to buy a car.”

Vince Zappa: Right and as a dealer now, you’ve also, if this is configured the way that we’re seeing dealers configure today, consumers are paying for that test drive, right? So, now you have a card in your hand, which is ultimately I’m going to sell this car. You actually may have the ability to discount based on being in the program to test drive to begin with, it’s another chip that you can use to actually further the sale.

Jim Fitzpatrick: You know what I would imagine? Everybody that brings home one of those different cars, what do they do? The neighbor goes, “Oh, I thought you were buying?” Well no, I’m actually on this new program that this dealer offers. Wow, that’s really cool, you know? And then you also have that same vehicle, those different vehicles, being seen by the sphere of influence of that consumer at that time. Somebody says, “Well, if it were me, I’d get that one,” and the guy says, “Well, I need this one,” and it’s just that much more exposure. Well, dealers and managers, when you go to NADA this year, you gotta go check out Vince’s booth at Cox Automotive and Clutch and get the whole story because just hearing this is very exciting. You know, I think and this is in my humble opinion that five or 10 years from now, probably in that area, this will be just like leasing. It’ll be something that every because once the OEMs jump in and they see it fills a void and a need for consumers today, it’s here to stay and I think for dealers who are early adopters to it, they will really come out on top in a very big way.

Vince Zappa: Yeah. Final point I’ll leave you with Jim is people always ask, “Well, what is the market?” And I’ve always taken the view that we’re not asking the world to stop selling cars as I mentioned before and leasing cars. However, I think when you look at leases, I think you have a population of people who lease generally who have this notion, they don’t have a notion of there being stored equity in a car, right? That’s already predetermined. They also value flexibility and to some degree variety because they’re signaling a three year hold time, generally speaking.

So, if you put those two together, you actually have a pretty interesting concept of subscription with a couple of it’s big value point, right? Which is you have a consumer base that understands I am in fact using transportation, I just want to use it better than the way I do today. So, that’s how I think that this ultimately-

Jim Fitzpatrick: I agree. When I was running dealerships years ago, but when I was running dealerships, all my neighbors were envious of me because I could drive whatever I wanted to drive. If I was remodeling a room, I could bring home a brand new pickup truck or something off the used car lot or if I wanted to take a weekend with my wife in the convertible, I’d grab one of those and the dealers and managers know what we’re talking about here, but yeah, consumers would love to have that capability.

Vince Zappa: It’s hard to go back once you go to that world. It’s hard to go back.

Jim Fitzpatrick: For sure. Well, Vince Zappa, I want to thank you so much for joining us on CBT News. We appreciate it. What you guys are doing is very exciting for the industry, for consumers, for dealers. I want to have you back in a couple months to see how NADA went and see what kind of traffic you had to the store, I mean to the booth rather at NADA and what kind of comments you got and I meant to have 50000 transactions out there, that’s very exciting.

Vince Zappa: Yeah. Thank you very much. Appreciate your time.

Jim: Great, thanks again.

CBT Automotive Network. The number one most watched network in retail automotive. CBT is a part of the JBF Business Media family.

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