On this week’s episode of F&I Today, Becky Chernek goes over the number of benefits that help you build a better relationship with a customer that come with subscription sales.
Welcome to F&I Today I’m your host Becky Chernek. I’m so happy you’re able to join us today. I’ve been in the automotive industry for over 30 years and in finance insurance since 1989. I founded Chernek Consulting in 2001 and provide current and up to date best practices in F&I training, offering workshops and in-dealership implementation for automotive dealers throughout North America. My goal is to help you to significantly boost profits utilizing innovative upfront sales strategies. It’s a pleasure to be here with you.
Subscription sales are here – are you getting on board?
Subscription sales is a growing trend in the automotive industry today. In case you’re not familiar with this trend, it’s not about selling subscriptions to magazines.
It’s about subscribing to a monthly service for a car you can swap out whenever you want.
This is a third way to sell a car and has a number of benefits that helps you build a better relationship with the customer.
The customer doesn’t buy the car. They don’t lease it. The service is more like a month-to-month or week-to-week and is mostly commitment free.
The payment usually covers insurance, roadside assistance and maintenance. And, most times, there are no long-term contracts.
The subscriber can drive the car as long as they want with the flexibility to walk away at any time, or swap into a different car. All of this can be done by simply using a mobile app.
This new way hasn’t yet covered the country. But it’s coming and dealers should be paying attention and figuring out a way to hop in as the services pick up speed.
Over the past couple of years, startups companies, such as Clutch and Flexdrive, have launched subscription services for cars, trucks or SUVs. Last year, the OEMs started getting into the act. Ford, Cadillac, Hyundai, Porsche and Volvo. And this year, other auto manufacturers are expected to join with pilot programs of their own.
Why? Part of the answer is that’s the world we live in – where we get what we want, when we want it, how we want it. This is a function of the on-demand economy that has become a $60-billion industry and growing.
Basically, the on-demand economy is defined as the surplus of whatever being put to use for the benefit of the community and consumers.
Think about it. If you have a spare bedroom, you can put it on Airbnb and rent it out each night like a hotel room. Rider-sharing companies Uber and Lyft essentially allow people with spare time to make money hauling people around in their personal vehicles.
Remember Zipcar? That’s considered the first car-sharing company. It has been around since the first tech bubble. You rent a car by the minute, hour or day. It expanded so much that Avis Budget Group bought the company in 2013.
The resounding success of those companies gave other entrepreneurs ideas on figuring out ways to expand the on-demand economy. It’s amazing how creative people are getting with technology. So, of course entrepreneurs would figure out a way to apply on-demand technology to car selling and buying, or perhaps more accurately, personal transportation acquisition.
For the most part, Millennials have been driving the on-demand economy. They are more accustomed to car and ride sharing because that’s how many of them grew up. Combine that with them conducting so much of their life’s business through their smartphones.
TransUnion released a study last year showing that Millennials are buying cars more than the previous generation at that age. Millennials use a lot of technology in deciding what to buy. And, they tend to lean toward “try before buy”.
The more subscription car services take hold, the more buyers of all ages may make the choice of “try before buy.”
What that could that mean for you, the dealer, is an opportunity to get potential buyers to have an extended test drive – one the buyer covers with a subscription.
Or, it gives you a different selling point to get an indecisive buyer over the line. That buyer joins the subscription service, drives the vehicle for a month or two, and walks back into the showroom and says, “I’ll take one.”
Rental car companies have seen this. Polk did a study several years ago that found that customers who rented from Enterprise and its brands were 55 percent more likely to buy a new car in six months than the average customer.
There’s another nice feature to the subscription service. Depending on the company, the service isn’t solely based on credit criteria. Sometimes the customer’s driver’s license and a background check get them into a vehicle.
With Clutch, for example, a customer qualifies for any of the three-tiered programs once passing a background check and has a valid driver’s license with a clean driving record. The cars in the program are new, hi-line and offer white-glove accommodations. Flexdrive offers new and preowned vehicles.
Customers typically pay an activation fee to begin the service. Then they are off and running with their cars with a lot of flexibility.
Last year, Cadillac introduced its subscription service for brand recognition. It allows the customer to choose several models throughout the year. For example, a driver could request an SUV in the summer-time for family road-trips and a smaller vehicle for city driving.
The customer pays $1,500 a month and can be delivered to the customer’s desired location.
Porsche Cars North America rolled a program called Passport late last year. For now, it’s only in the Atlanta area.
The customer has two payment options based the model they want: $2,000 or $3,000 monthly payment. That payment includes a million-dollar liability insurance policy, $1,000 deductible for driver’s roadside assistance, taxes, full detail washes and maintenance.
Care by Volvo begins this year and is national. But the subscription focuses on one vehicle – it’s XC40 SUV. It has two prices $600 and $700. Unlike other subscription models, there is a two-year commitment. You can trade in at 12 months.
So those of you in the F&I department may be thinking, “Wow, where in the world does that leave me?”
There’s no doubt vendors will have to think outside the box when offering value-added products or service to subscription customers.
Perhaps offering the customer savvy technology plans or hotel airport parking accommodations as an added value option? If the customer is responsible for the wear damage or accidents, perhaps a diminished value product or excess wear and tear might be something worthwhile to consider?
To be honest, all of this is so new, I’m not exactly sure how this will work. I’m sure the dealer will be able to customize the subscription plans and what options would be made available to the customer to keep up with the competition.
Think about this, though. A subscription service may be able to help revive some of your dead deals. How many of those deals do you accumulate during the month that you simply can’t put together?
As you know, a dead deal is attributed to several factors – the customer’s limited credit, excessive debt, or time on job.
The customer can be in a car driving as long as they pass a background check and has a valid driver’s license and high credit score has nothing to do with it.
Imagine keeping the customer in the driver’s seat by putting them into a car with payments they can afford until their credit situation improves.
The customer is offered a third alternative without having to pay on a high interest loan that will be next to impossible to get out of over the next four to five years.
If you take good care of your customers, even the customer with slow pay history will become loyal and stick with you forever!
How many more cars would the dealer be able to sell over time if the customer wasn’t stuck in a vehicle they either didn’t like or payments they just couldn’t afford and terms that created massive negative equity problems?
The subscription service may not be the perfect solution for those types of buyers yet. But as the service becomes more popular, it certainly could be a good option that helps establish a relationship that will eventually grow your business and turn into a retail commitment!
Thank you for joining me on F&I Today. Be sure to come back next week right here on the CBT Automotive Network for our next edition of F&I Today. Also, feel free to contact me regarding my consulting services. My specialty is providing F&I Training, helping auto dealers achieve high levels of performance and profit by improving internal processes that begin the moment customer touches down on the dealership website and ends with finalizing in-person transactions in F&I. Also, for our CBT Automotive dealers – contact me about my complimentary (1) single store online analysis and take your business to the next level!