5 Takeaways for OEMs Considering Subscriptions

Originally published in Driving Today: Miles Driven, Not Cars Sold: 5 Takeaways on Subscription Programs.

The real disruption happening in the automobile industry today has nothing to do with technology, and everything to do with consumption.

In the space of just over a year, automobile subscriptions have transformed from novelty concepts aimed at the luxury sector into mission-critical programs targeted squarely at the mainstream.

In fact, Frost & Sullivan estimates that more than 16.3 million new and used cars are expected to be part of the vehicle subscription universe by 2025.


At this point, almost every major OEM has either launched a subscription program, or has one in the works. BMW, Porsche, Lexus, Audi, Land Rover, and Mercedes-Benz all have subscription programs. Porsche says that 80% of its subscribers are completely new to the brand. Volvo plans to have fully half of its automobiles sold on a subscription basis by 2025.

Volvo has launched its XC40 small SUV with a strong subscription program. Hertz recently launched a subscription program, just two months after its rival Enterprise made a similar announcement. Subscriptions make perfect sense for rental companies that are trying to maximize inventory usage.

The subscription model has also inspired a number of new third-party services like Canvas, Flexdrive, Carma, Silvercar, Fair, and Turo. McKinsey estimates that the automotive recurring revenue pool will grow and diversify with new services potentially becoming a ~USD 1.5 trillion market by 2030.

It’s a remarkable shift that’s completely upending the way automobiles have been manufactured, sold, and driven for over a hundred years. And the fact that it has all happened in just over the last 18 months is pretty amazing.

The Financial Times recently summed up the situation quite well, “Of all the trends sweeping the auto world — from electrification to self-driving cars — the rise of subscriptions is the one that threatens to upend a business model, honed over a century, of developing a car and selling it to motorists who replace it periodically.”

The fact of the matter is that, as consumers, we’re just not that interested in the concept of “ownership” anymore, with its inflexibility and depreciating assets. Most of us don’t just want an expensive Porsche sitting in our garage. Instead, what we want is the right vehicle — maybe a convertible for a drive down the Pacific Highway one weekend and a minivan for a family camping weekend the next — to get us from point A to point B.

The OEM Subscription Challenge

It’s still going to be decades before fully autonomous vehicles completely obviate the need to have a personal vehicle. In the meantime, we’ll just subscribe.

But at the same time that these programs are exploding in popularity, some OEMs are learning the hard way that subscriptions are much more than just glorified leases. Cadillac recently paused their program, for example, in order to re-tool their financing as well as assure their reseller channels that they won’t get left behind.

A stable base of recurring revenue is the ultimate economic moat, but selling access as opposed to assets entails a big shift in how you operate your company. Car companies are turning into transportation providers, and they need to transform themselves accordingly.

My company, Zuora, is currently working with seven out of the 10 biggest auto companies in the world. Here are five takeaways I would give to any auto OEM considering a subscription program:

#1: New Value Metric: Miles Driven, Not Units Sold

First, the new value metric is miles driven, not units sold. The new imperative is to organize and incentivize your business around generating usage.

In fact, we’ve found that subscription companies that employ a mix of both tiered (for example, a fixed monthly cost) and usage-based pricing grow the fastest — 1.5 times faster than subscription businesses without any usage-based pricing.

Make the odometer a key part of your pricing model.

#2: Reseller Channels are even *More* Important

Second, as a result, your reseller channel actually becomes more important, not less. There are a lot more touchpoints as subscribers switch between vehicles and programs. Your salespeople need to think more like service providers.

Don’t think in terms of customer service — think in terms of customer success.

#3: Frictionless Customer Service

Third, your customer experience has to be absolutely frictionless.

These days companies live and die by the number of pain points they inflict on their customers. Subscribing to a car should be as simple as subscribing to Netflix.

#4: Owning the asset is a recipe for growth

Fourth, you own the asset now. You are responsible for maintenance, repairs, insurance, everything. That can seem like a daunting challenge, but it’s actually a recipe for growth.

By generating more usage of properly maintained vehicles, OEMs can generate economies of scale that will result in huge cost efficiencies.

#5: Subscriptions are not leasing

Finally, remember that subscriptions aren’t leasing. Leasing is just about the financing. It has nothing to do with connecting with the customers.

The idea of subscriptions is to extend the margins with closer direct-to-consumer relationships and monetization opportunities.