Stock - Car Subscription
Car subscription based models have built quite a base in Europe and the US, so much so auto manufacturers are getting directly into this game. Image Credit: Supplied

When Karl Benz invented the automobile in 1886, little did he realise the impact he would have on lives - and on the world economy. Since then, vehicles have been at the centre of progress.

As manufacturers looked to new ways to unlock growth, we saw new operational models emerge that prioritised players in the automotive value chain, and not necessarily customers. That is why today, a car doesn’t go from manufacturer to customer directly, but has numerous players in between, including OEMs, banks, insurance companies and others. With the entry of each party in the value chain, the price of the car only goes higher - with costs passed on to the consumer.

The lack of world-class public transport encourages people to explore car ownership. However, the high upfront costs for buyers is a major deterrent. That is why the MENA region on average continues to have a low motorisation rate. Saudi Arabia, UAE and Egypt have a motorization rate of 312, 305, and 49 vehicles respectively as compared to 797 in the US.

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In this region, a 20 per cent down payment is a prerequisite, creating a high upfront cost. In Saudi Arabia, a 30 per cent debt-to-income ratio is needed to apply for a loan. With 50 per cent of the vehicle retail price spent on service maintenance and insurance, and the financial risk of a 60 per cent loss in value over five years, potential car buyers therefore must rethink their decision along every step of their purchase journey.

Having access to a car can create numerous opportunities for entire communities. In the US, research shows that owning a car has been among the most powerful economic advantages a family can have. However, the rising cost of ownership and associated risks do not make outright purchases an attractive option any longer. On the contrary, drivers today demand increased flexibility and new ways to access a car.

Demographic shifts

In fact, research shows that millennials prefer to have access, rather than own. With the rise of on-demand services in our new normal, it is no surprise people equipped with a mobile phone can easily get a car at the press of a button.

The rise of smartphone adoption has completely transformed how we access various industry services. In the mobility sector, ride-hailing services like Uber and Careem created a big shift in how entire cities moved and put customers’ needs at the heart of urban transport services. From grocery deliveries and home maintenance services, to medicines on demand, mobile devices have played a transformatory role by putting innovative ideas in the hands of consumers.

However, the automotive industry has mostly operated as per its traditional model. Together with high operating costs, declining sales have further accelerated the need to not only innovate, but also experiment and adopt new ways of working.

Speed up digital ways

As a mobile-first service, car subscription is now helping digitalise the legacy automotive industry, connecting dealers and rental companies directly to customers, removing unnecessary costs and helping move inventory faster than before. Imagine having a car delivered to your doorstep within 24 hours. Or you could switch cars every month, upgrading and downgrading as per your needs.

The hard truth is that, despite people saying they own a car, customers do not actually register a vehicle in their name until they pay off their loan, which is typically over a five-year term. In that time, cars undergo significant depreciation and combined with interest payments, maintenance, insurance and other costs, customers end up on the losing side. Therefore, the emergence of the subscription model is a gamechanger, creating flexibility for those who want automobile access, without the burden of ownership.

The car subscription ecosystem, though nascent, is putting customers first, while ensuring that benefits remain for the entire value chain. Complementing the traditional sales channel, car subscriptions in the US and Europe are expected to reach $30 billion to $40 billion by 2030, or up to 15 per cent of all new car sales.

Going direct

No wonder that brands such as Porsche, Volvo and Audi are among those with their own car subscription services, and in essence shifting to Mobility as a Service (MaaS).

As digital-first businesses, car subscription players are creating a wealth of opportunities for automotive dealers, OEMs, financiers, and even rental companies. Automotive partners are rapidly shifting from brick-and-mortar operations and evolving into technology companies. Besides ensuring the constant movement of inventory, subscription partners have access to data that provides new insights about changing customer preferences. Because of this, partners can not only plan better but also create new efficiencies for the industry.

For this region, with one of the youngest demographics in the world, automotive subscription will open up a world of opportunities. Access to mobility options will unlock new jobs, spur partnerships and connect bright young minds, as moving between places becomes easier and affordable.

Automotive access will also help create safe spaces, without an overdependence on public transport infrastructure. So the next time you want to get behind the wheel of your dream vehicle, you don’t need to connect with dealers, banks, insurance companies and more.

You simply need to download an application and have a car delivered right to your doorstep.