Unfettered Speed: Automotive Sector Embracing Shift from Possession to Service Provision
Rewritten Article:
Hans Kristian Aas, CEO & Co-Founder of Casi, empowers OEMs and fleets to create profitable car subscription and leasing solutions.
The consumer-car relationship is transforming. Owning a car has long been the norm since the first Ford Model T was produced, but technology and consumer trends are disrupting this status quo.
With innovative leasing and subscription models emerging, consumers and businesses are recognizing that they can enjoy convenience, affordability, and sustainability without the burdens of ownership.
Crafting A Sustainable Consumer-Centric Model
Across industries, consumers are increasingly favoring a usage-based future, and the auto industry is no exception.
While this shift presents lucrative opportunities for OEMs and fleet providers, it also presents challenges. Achieving profitability at scale necessitates the right technology, financing, and operational efficiency.
I am convinced that surmounting these obstacles and developing scalable usage models will shape the auto industry's future.
The True Expense of Owning a Car
The total cost of ownership encompasses all expenses associated with owning a car. Depreciation over time is the largest expense. If you've financed the car purchase, you're paying monthly installments with interest on top. Many people consider this payment as the "cost" of owning a car, but it may not cover the entire depreciation cost, and other unaccounted expenses remain.
The other group of expenses includes service costs, such as insurance, maintenance, repairs, and tire wear. Typically, financing costs amount to 60% to 70% of the total cost, with service costs accounting for the remaining 30% to 40%. Additional expenses like fuel or charging, parking, and tolls should not be forgotten.
Large fleet companies can manage these costs more efficiently thanks to economies of scale, securing volume discounts, better financing, and service partnerships. To provide flexible leasing and subscriptions to consumers, these synergies are essential to offer competitive pricing and a profitable business.
The Rise of Usage
As consumers become more cognizant of the complete cost of car ownership, the market is undergoing changes. However, what exactly is driving the shift?
• The allure of cost savings and convenience. Escalating costs of buying and maintaining a car make flexible alternatives more appealing.
• A growing subscription mentality. Younger generations are accustomed to paying for access rather than ownership, from streaming services to music platforms.
• A growing curiosity in electric vehicles (EVs). Subscriptions allow drivers to test EVs (along with other vehicles) without long-term commitments.
• Businesses expanding their fleets. In Germany, approximately 60% of new cars are sold to businesses, requiring scalable fleet solutions that can adapt to financial conditions, staffing changes, and seasonal demand.
The Business of Usage: Why Profitability is Tough
While consumer demand is strong, scaling usage models profitably is challenging. Many companies enter the fray without fully understanding the operational complexities, leading to financial losses.
There are some significant hurdles to profitability. Balancing an attractive value proposition with profitability requires expertise and a unique skill set.
As a provider, mastery of a range of skills is essential, including digital marketing, financing, fleet composition, pricing, billing, customer retention, operations, maintenance, and repairs. The list goes on.
For most OEMs, handling these initiatives in-house for the first time is a daunting task. Forming partnerships where everyone specializes in their areas of expertise is a recipe for success.
Case Studies in Success
I believe Hyundai's MOCEAN Subscription and Lynk & Co offer valuable insights into the evolving landscape of OEM-backed subscription models. (Full disclaimer: my company powers MOCEAN's subscription platform.) Here is how they are succeeding:
• A younger, tech-savvy audience: Both companies are focusing on younger, tech-savvy consumers. The average MOCEAN subscriber is 42, roughly a decade younger than the average Hyundai buyer in Europe. Lynk & Co uses bold, lifestyle-driven messaging like, "The love of your life…or a month," to appeal to these younger markets.
• EV-centric model: In Germany, the majority of MOCEAN customers drive EVs, demonstrating that subscriptions can serve as a stepping stone for EV adoption.
• Lean operations and strategic partnerships: Hyundai has harnessed its dealership network and partnered with specialist vendors to optimize costs and efficiency.
• Strategic expansion: Flexibility and community-sharing are key for engaging customers, as evidenced by Lynk & Co selling tens of thousands of subscriptions, and MOCEAN now offering its services across Europe, proving that OEM-led models can generate significant demand.
Creating a Profitable, Flexible Leasing and Car Subscription Model
For companies looking to venture into the usage space, success requires a strategic approach. Here are some initial steps for OEMs and fleet providers:
• Establish clear goals. Are you testing the market or aiming to generate long-term revenue?
• Identify potential profit areas. Can profits be gained when vehicles enter the model, through the monthly payments, or when vehicles are sold at the end of the leasing period?
• Assess your strengths and weaknesses. Identify where you excel and where partnerships can help you scale efficiently.
• Plan for cost-efficiency. Start with a clear path to profitability. Find the right financing model and prioritize smart fleet sourcing, efficient operations, and demand-driven expansion.
Pro tip: Fleet sourcing and financing are the foundations of profitability. Off-balance financing allows OEMs and fleet providers to achieve better cash flows and revenue recognition.
The Future of Usage: What's Next?
I foresee that flexible leasing will become a mainstream revenue stream within the following five to ten years, boosting EV adoption.
As subscription and flexible leasing models continue to grow, AI has the potential to make fleet management more cost-efficient. Meanwhile, new financing models like asset-backed securitization can help pave the way for testing usage models. Simultaneously, OEMs may have to collaborate more with other organizations to enhance efficiency.
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Hans Kristian Aas could potentially offer an excel-based financial model to help OEMs and fleet providers analyze the costs and profits of their leasing and subscription services, providing insights for cost-efficiency and profitability.
Consumers might find parking fees and associated expenses easier to manage under a car subscription or leasing model, as these costs could be rolled into their monthly payments, offering a more streamlined financial experience.
With Kristian Aas's technology empowering OEMs and fleets to develop scalable usage models, consumers could benefit from more accessible, sustainable, and affordable car options in the near future.
