Subscriptions add spice to auto retail business models. An interview with LMP CEO Sam Tawfik

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As mobility patterns change, subscription services could help traditional vehicle retailers remain relevant. Megan Lampinen talks to Ford’s subscription service, Canvas

Subscript ions are no longer just for magazines and gym membership. Alongside leasing, rental and car-sharing, subscription services are rapidly gaining ground among drivers looking for a form of temporary, hassle-free ownership. But if shoppers are lured away from traditional car sales, what impact could this have on the traditional dealership model?

On subscription
Subscription schemes vary in their details, but most agree on the basics. For a flat fee, they provide members with the use of a car and the ability to swap it for another model at various
times, as well as insurance, delivery, maintenance, repair and even concierge services. Frost & Sullivan (F&S) estimates that by 2025, more than 16 million vehicles will be part of vehicle subscription services. By this time, it expects that nearly one-tenth of all new vehicle sales in Europe and the US will be offered as part of vehicle subscription programmes. For those players that secure a foothold, it could prove a lucrative segment. F&S pinpoints the market’s value at about US$100bn by 2025. “Vehicle subscription is a transversal theme that cuts across new and used vehicles, vehicle segments, internal combustion engine (ICE) and alternate energy vehicles, OEMs and non-OEMs, regions, young and old drivers, and mainstream, premium or super premium customers,” commented F&S’s Julia Saini, Global Vice President , Automotive. She suggests that vehicle subscription could offer a way for both automakers and dealers to add value to their traditional business models.

Canvas
In 2016, Ford Motor Credit acquired California-based subscription service company Canvas. These are still early days for the operation, which so far is only active in Los Angeles and San Francisco. “We think of ourselves as a simple alternative to car ownership,” explained Canvas Chief Executive and co-founder Ned Ryan.

Users simply visit the Canvas website and select a vehicle and a subscription duration between one and 12 months. “That’s not a commitment to a vehicle, it’s a commitment to Canvas,” clarified Ryan. The vehicle itself is only ever a monthly commitment. The fees cover use of the vehicle along with insurance, maintenance and warranty. “The only thing the user has to think about is fuelling that car,” said Ryan. “We at Canvas assume all the traditional responsibilities and liabilities associated with owning a vehicle.” Ford’s involvement with Canvas could prove a useful means of brand exposure. About 30% of Canvas customers have never owned or leased a car before, and 64% are classified as Millennials. The bulk of users, 81%, are new to the Ford brand, so this sort of offering represents a way for users to become familiar with the line-up. “After using Canvas, 84% of our customers said they viewed Ford favourably and would consider a Ford vehicle in the future,” he noted. “It has been a real benefit for customers to experience a Ford vehicle.”

The subscription offering also ties in with wider changes in mobility and ownership perceptions. “We are seeing broad changes in the way people are thinking about moving around,” Ryan told Automotive World. “That starts with things like scooters, bikes and rideshare, and we think it also applies to how people interpret longer form usage of vehicles. Subscription is part of this broader trend where people want more personalized offerings that work for their life. Ultimately, that’s what we’re seeking to do with our product.”

Enthusiastic consumers
Not all schemes are tied to a specific automaker. LMP Automotive is a small Florida-based company with big ambitions to expand across the US east coast. For US$575 a month plus an annual subscription fee, it offers a range of late model vehicles, most of which still retain some of the original factory warranty. It delivers the car directly to a member’s driveway, as long as it is within 300 miles of an LMP location. Otherwise, the company will cover the airfare (up to US$300) for the member to pick up the model. Company Chief Executive Sam Tawfik has had a very enthusiastic response from customers so far.

This model addresses a broad spectrum of consumers. It is mainstream and it’s going head to head with leasing and financing “ spectrum of consumers. It is mainstream and it’s going head to head with leasing and financing ” spectrum of consumers. It is mainstream and it’s going head to head with leasing and financing

“This is a replacement for a purchase, whether it’s a lease or a finance deal, and dealers will want in on it,” he told Automotive World. “Believe it or not, we haven’t had any bad feedback. Customers love i t because it’s basically a month to month lease without a commitment and you can change the car with short notice for a different model. We find that today’s generation aren’t that interested in owning much. They don’t even want to own a lawn mower and you are seeing stores offering subscriptions for these as well. They simply don’t want to own.”

Subscription is part of this broader trend where people want more personalized offerings that work for their life

A significant portion of LMP’s customers are socalled ‘snow birds’—residents from the northern US states or Canada that come down to Florida for the winter months. For this demographic,
which only requires a vehicle for three or four months of the year, the subscription model is particularly appealing. “This model addresses a broad spectrum of consumers,” added Tawfik.
“It is mainstream and it’s going head to head with leasing and financing.”

New business models
LMP has incorporated this subscription service into a wider business model. It limits its subscription terms to six months, after which time it gives the customer a different car and
sells the old car online. “In a sense, we’re manufacturing new cars for our online sales channel,” Tawfik suggested. LMP also rents vehicles and is specifically targeting Uber and Lyft drivers. “The cycle works well for us. We basically buy, rent, subscribe, and then sell, all on our platform,” he added. “We believe this is a very disruptive space.” For today’s traditional dealers, this could prove a real opportunity for reinvention. “The franchised automotive system hasn’t changed much since World War II and in my experience over the past several years, the dealers don’t want to change,” said Tawfik. He expects that most dealers will remain closely linked to the economy, doing well when the economy does well and suffering when it doesn’t. As for incorporating subscription services into their repertoire, he doesn’t expect a massive movement from traditional retailers. “I don’t see the dealerships jumping on board in a very big way with this. What I do see in the US is that some are dabbling in it and love it. Those are the ‘outside the box’ thinkers. The entrepreneurs are looking to deploy technology like this and new offerings to disrupt the space.”

LMP intends to acquire franchise dealerships and to transform them, incorporating them into i ts wider network of rentals and subscriptions. Tawfik still sees a role for the traditional bricks and mortar dealership location: “Some people will choose to do it completely online and have the car delivered. Most will want to come in and see what they’re subscribing to. That’s just the nature of the transition from online to bricks and mortar. We are a hybrid of that, and anyway, you need a location to house the inventory.”

For Ryan at Canvas, partnerships with dealers represent an ‘essential’ and ‘ultra-important’ means of achieving growth. Part of this involves leveraging the dealers’ expertise in the customer handover process and housing, cleaning and maintaining vehicles. “We are working very hard to find a way for the digital world to partner with the physical world, to deliver the mobility products of the future,” he explained. “There are many things that they do well and other things that we do well. If you find a way to marry those two worlds, we can really create some interesting things together.”

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