The Dangers Dealerships Face from OEM Car Subscriptions
By now, everyone in the auto retail business has heard of the car subscription concepts offered by brands like Porsche and others. Visit porschepassport.com and you’ll see this concept in action. Something like “Netflix for cars”, the new car subscription model allows customers to pay a monthly fee to access the entire Porsche lineup, change cars as often as they want, and always have the latest models.
Dealerships, once they’ve understood how this concept works, should immediately be concerned: basically this means that OEMs are competing with new car dealerships directly. As we all know, franchise law protects dealers by preventing manufacturers from selling or leasing cars directly to consumers. However, the idea of a subscription is a grey area, as the franchise law was obviously written long before the subscription model was developed. As it stands today, manufacturers are marketing these subscriptions directly to consumers, basically working around the franchise law.
Dealers are now forced to compete not only with each other, and with other makes, but with their own manufacturers’ subscription businesses! Obviously a person that might previously have simply walked into a Porsche dealership and bought a car will now consider if it might be more desirable to try the Porsche Passport instead. This person then might become a direct customer for Porsche, rather than the local dealership. Yet another competitive pressure on an already squeezed industry!
To combat this increasing competition and keep fighting for market share, dealerships have two options. First, applying legislative pressure to amend the franchise laws to include subscriptions is one avenue to cut this threat off at the source. However, this may take years to become law, if it ever does.
The second path is to adopt the subscription model yourself for your own dealership. If customers want car subscriptions, there’s no reason that OEMs should have a monopoly on this business model - dealerships can build and market their own subscription business.
Dealerships have a major competitive advantage in this concept as well - unlike the OEMs, a local dealer can offer a subscription service across multiple makes, allowing consumers much more choice and diversity and ultimately making the subscription program much more attractive. After all, the major benefit of the subscription is being able to switch cars often and have some ongoing novelty in what you drive.
This new subscription business model is yet another example of the modernizing automotive retail industry pushing traditional dealerships into more and more competitive positions. Dealership owners and managers must be sensitive to this threat and adapt quickly. The subscription business has proven the ability to crush traditional ownership-based businesses in other industries including software, entertainment, and more. Dealerships need to embrace modern business and marketing strategies or die. Contact Max Zanan today to learn more.