Convergent Alliance | SUBSCRIPTION MODEL IS THE ROAD TO FLEET OPERATIONS
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SUBSCRIPTION MODEL IS THE ROAD TO FLEET OPERATIONS

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SUBSCRIPTION MODEL IS THE ROAD TO FLEET OPERATIONS

 

For those of you who follow our newsletters will remember the last three issues and the ones prior to that all the way back to December of 2016. We have started alerting auto retail industry regarding the upcoming changes in transportation concepts and how it would impact this industry since then. The biggest danger is, and it has always been the unknown fate of auto retailers in the U.S. today. While manufacturers are starting to give hints of the future with the introduction of the subscription model, they are not sure yet what the role the retailers would have if any, in this new distribution concept.

 

Last month at the New York Auto show, seven manufacturers talked about their pilot subscription offerings in specific test markets.

 

CADILLAC-BOOK: Currently being offered in Atlanta, Los Angeles and Dallas. Customers are allowed to switch up cars up to 18 times and pay $1,800/month which includes maintenance, registration, and insurance; they are limited to 2,000 miles per year. Cadillac offers concierge services to exchanges vehicles within a 75 mile radius. Cadillac pays its retailers a referral fee for sending customers to Book and provide the repair and maintenance through their service departments.

 

PORSCHE-PASSPORT: Starts at $2,000/month and currently offered in Atlanta test markets, Porsche is not sure yet about retailer participation and or involvement with the model as well as when to offer these vehicles back to retailers as CPO vehicles.

 

MERCEDES BENZ-COLLECTION: This pilot program will start in June and will involve two of its retailers in Nashville area. Prices will range from $2,000-$3,700/month and customers will be able to switch up cars as many times as they want with no mileage limitations. Customers will be able to manage their account and exchange vehicles through a smart phone app.

 

BMW-ACCESS: BMW started their pilot program this month with one of their retailers owned by Sonic Automotive in Nashville, TN. Their model costs $2,000/month with unlimited swaps and their retail partner gets paid a flat fee for each transaction to become the face for the customer and provide service and maintenance.

 

CARE BY VOLVO: Volvo program costs$600/month and customers are allowed to swap after 12 months into a 24 month program.

 

In addition to these manufacturers, Lincoln and Hyundai also offer pilot subscription programs and are also experimenting with used vehicles priced between $900-$1,300/month. One, six and twelve month options are also available.

 

DRIVE FLOW: On the retailers side, a North Carolina and Virginia 38 franchise retailer group; Flow Automotive Co., offers their own subscription plan for $1,499/mo. And a lower tier one for $850/mo.

 

In our previous communications we have expressed our view repeatedly that the retailers going forward have two options; be extinct and get out, or become a fleet operator.

 

Subscription model is the introduction to the future of mobility as technology transitions into autonomous vehicles. As we have said the driving force behind all this is to maximize the use of metal on the road and avoid privately owned vehicles sitting on parking lots for over 19 hours a day. At this level of subscription we are only experiencing the first stage of the future private transportation and not the shared one. With the complexity of the future autonomous vehicles, price tag, insurance cost and licensing will limit this type of use to a few users which will represent the luxury segment vehicle ownership today. Everyone else will be utilizing those fleet services as ride share and ride hail transportation at rates well below the cost of private ownership.

 

The biggest question remains to be the size of these fleet operations. After Auto Nation’s agreement with Waymo to service their autonomous fleets in the future, Mercedes Benz pilot with Sonic Automotive, Flow Automotive, a 38 franchise giant’s initiative to start their own subscription plan; it is clear that this is not going to apply to mom and pop retailers. If they want to secure their future, a new type of joining forces need to be developed, or they would be acquired by these larger retailer groups. But there is not much time; GM already announced that they plan to commercialize their autonomous vehicles through their subsidiary Cruise Automation as early as 2019. For some of you out there who might be thinking that this is still 20 years away it might be a rude awakening. As we have mentioned before, we are launching an initiative to assists small retailers to join forces in coalitions to be prepared in order to participate in the future fleet operations and be able to compete with all the big boys. We have efforts to that end to start proposing initial retailer conferences starting with metro markets. If this newsletter reaches you and you would like to learn more about a well detailed business plan for your future please contact me; Arlan@tarhangroup.com. As always I look forward to hearing from you.

 

Arlan

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