DON’T FIGHT THE SUBSCRIPTION MODEL
An automotive retail development company.
Convergent Alliance, Automotive retail development company, dealership remodel, dealership assembly, dealership profits, dealership software, automotive industry, dealership construction
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DON’T FIGHT THE SUBSCRIPTION MODEL

  |   Business

In order to discover the limits of possible we must leap beyond it and into the impossible. As the mobility and transportation concept continues to go through significant paradigm shift, new ideas are emerging to provide more flexibility, economic advantage and more importantly ecological and time saving solutions for our ever so crowded, metal filled world. 30 plus years ago, when a dealer could sell a car for just about any price it can get away with and maximize profit opportunities, business was great. Over the years with price and cost information shared over the internet, manufacturers’ margin reductions to control transaction prices, volume driven performance bonuses, all contributed to a cut throat new car industry for the dealers to survive. Now, if you don’t have a strong fixed operations and pre-owned sales business, you are destined to fail by relying on new vehicle sales.

Subscription model was a brilliant solution that the manufacturers came up with to end price wars and still get away with not getting caught in the price fixing laws. You can go on to a manufacturer’s web-site, select what you want and find out exactly what it would cost to drive that vehicle and under what ever circumstances that would also include just about everything from insurance to registration and to maintenance and repairs; in fact if it were an electric vehicle there would not be any fuel charge as well.

Since the introduction of the subscription model, dealers in skepticism have been fighting the concept in various states with fears of threat to the franchise system. Sinicism reigns supreme among car dealers, while the industry nears the end of an era that will perhaps completely eliminate human driven transportation in the next decade or so, concepts like subscription and ride share might be the last steps with manually driven vehicles going forward. If the dealer body as we know it today does not wake up and smell the coffee and welcome innovative ideas to keep going as far as they can, they are going to be extinct. In California, Indiana and New Jersey, State Assemblies either passed a bill to stop manufacturers from offering subscription model or they are in the process of blocking it. It makes no sense, why dealers would fight this. Instead, they should be working with their respective manufacturers to establish new relationships to enhance their business models to encourage the subscription concept.

If organized properly, subscription model will not only take anything away from the car dealers but it will in fact improve their profitability well beyond the struggles they go through today. If you assume for a moment, that on an average a dealer needs to make about $3,000 per unit retailed gross profit all in, in order to stay profitable and prosper, all they need to do is figure out what it would take for them to earn as a margin to deliver a subscription vehicle to a customer from their inventory. While this model provides a one stop shopping concept for all of the ancillary products that are involved in a conventional vehicle sales or leasing including vehicle service contracts and gap insurance, it would also potentially eliminate a lot of the overhead that dealers incur today. They no longer would need a conventional finance department, no sales staff including managers, a much simpler marketing and advertising strategy, and even no business development department. Cost savings involved operationally given that they receive sufficient compensation to deliver these subscription vehicles to customers, are substantial and will directly impact their bottom lines. Additionally, almost without exception, dealers would have a much greater control of their own primary market areas and pump in pump out practices would cease.

Needless to say, the entire philosophy of being a car dealer would transform from being a scale based metal moving to customer service focused practices in order to remain effectively in business. Dealers would no longer struggle to sell service to retail customers since all the work required including all of the maintenances would be reimbursed by the respective manufacturers.

So do yourselves a favor, instead of fighting a change which will take place anyway, work with your dealer council to hammer out an agreeable margin for the subscribed vehicles and have them delivered only through retail dealerships and from your inventory. Alert your NADA representatives to take the same course of action with their respective manufacturer relations staff. Franchise system should not be allowed to turn into a flesh eating monster in the interest of protecting what we have today since in due time it will have no value if we don’t initiate a massive transformation of our business models.

I would like to hear from you regarding your comments and perhaps try to shed a bit more and specific light in your individual circumstances.

I look forward to hearing from you,

Arlan