Can Vehicle Subscriptions Match Commercial Fleet Needs?
Vehicle subscriptions and carsharing are, at least theoretically, new innovations coming out of Silicon Valley and Detroit, that have for the most part been focused toward the retail vehicle consumer market.
However, it seems from a needs analysis point of view, and from current “vehicles on the street,” that these products best serve the fleet market, particularly the smaller commercial fleet administrator.
To date, vehicle subscriptions of new vehicles promoted by the manufacturers have met limited success in terms of retail buyer adaption, showing low volumes and tiny collective market share.
Cadillac even suspended their Book program last year.
While used vehicle subscription services have had somewhat better acceptance, they still represent an infinitesimally tiny portion of the retail marketplace.
Peer-to-peer (individual to individual rentals) car sharing services, such as Turo and Maven, have had better volume numbers, but I do note that both of those companies are losing money, and still can’t hit self-sustaining cash flow numbers.
Analyzing Subscription Services and their Place in Fleet
Let’s take a closer look at how vehicle subscriptions, which really can best be described as long-term monthly or weekly, all-inclusive rentals (insurance, maintenance and repairs). These subscriptions really do fulfill many of the unique needs of a small business, which may have cyclical or intermittent cash flows, and owners who do not want to sign personally for a longer term lease or purchase finance contract and who want to simplify the process of acquiring vehicles.
Small companies, invariably, do not have dedicated fleet managers, so the comprehensive nature of a car or truck subscription, that includes insurance, regular timed maintenance (triggered by a vehicle telematics alert), and road side assistance, satisfies a true need, more than for both a larger fleet, or even an individual owner or retail customer whose vehicle is not in service nearly as much. The fact is a commercial vehicle laid up or not on the road is more of a financial problem for a small business.
Further, while large firms have well-kept financial statements, in many cases audited, to easily support vehicle lease or purchase commercial financing, we all know that small firms focus more on cash flows and minimizing taxable revenue, rather than total income that may support vehicle credit lines.
In most cases, commercial lenders will require a business owner to personally guarantee any vehicle finance contracts for a smaller business with minimum assets in the business and/or without a long history. While this may be okay with some owners, many would rather not be personally on the hook for a business expense and might minimize their business vehicle purchases or leases because of this requirement.
Contrast this with a vehicle subscription where no personal guarantee is required. Usually just a month or so advance payment, and a major credit card, and that car or truck is on the road. Note too, the subscription for a vehicle can be paid for with a credit card in the business name, for a monthly total cost write off for this asset, that does not have to be capitalized.
Most importantly, many smaller businesses have irregular cash flows, or seasonal needs, and hesitate to add fleet units because of the multi-year monthly financial commitment (especially if on a personal guarantee). This is where a comprehensive vehicle subscription is an outstanding instrument to fulfill a small business need. There are no long-term commitments, most successful operators usually only require a minimum term for a commercial customer of a month or two, after which the business can terminate the commitment and turn back the vehicle at any time.
Perhaps a business needs five trucks in the winter, fall and spring, but because of the nature of the business, looks to expand the fleet to 10 trucks in the summer months. While there is no real way to do this with a conventional lease or purchase contract, it’s easy to expand/contract a fleet with vehicle subscriptions.
The Role of Technology in Subscription Services
If this subscription I’m describing looks more like an all-inclusive (insurance, maintenance, etc.) long-term rental, well, that’s because that’s all a vehicle subscription really is, with the added touch of technology and a renter side app, which makes it very easy for company to select and contract for a vehicle.
With electronic document signing and commitments, this also makes it very easy for a dealer to offer these subscription/rentals, without the traditional manpower and training or follow-up requirements of being in the rental business.
This looks so much like a rental, and is such a no-brainer offering for a small commercial customer, the question may be asked, why aren’t rental companies doing this, and what is a dealer’s advantage?
The short answer is that a lot of rental companies are offering these fleet directed subscriptions or long-term rentals to small businesses, and have been far more successful at it, with estimated more volume, than all the retail-focused subscription services combined — it’s one of the best kept secrets out there.
One Avis licensee I know, for instance, has over 600 long term rental/subscriptions out mostly to commercial accounts, and, I believe, over half are pickup trucks.
So, what is the fleet minded dealers’ advantage in offering these subscriptions to small commercial businesses.
The first part of this answer hasn’t changed since I helped create the small commercial sales dealer training programs for Ford and GM over 20 years ago: a small commercial business needs all the services and counsel a dealer can best provide.
The second part of the answer is more structural, tied to the nature of current vehicle subscriptions and technology. As previously stated, vehicle subscriptions work best for the dealer and the customer, in pricing, when the vehicle that is put into service is a well-maintained used vehicle, such as a lease turn back and a CPO unit.
When a small business customer is not committed long term, to save some money, invariably their subscription preference is for late-model, higher-trim used models, rather than a brand-new vehicle with a premium attached.
Some commercial buyers are still going to want a new vehicle, and that can also be accommodated, but dealers are uniquely suited to provide a steady stream of well-maintained used vehicles, with their constant supply of two- to four-year-old lease turn backs.
A commercial business can use the money its saving by choosing used over new to perhaps contract for a better equipped trim of a vehicle that it otherwise would have been able to afford. At the same time, a dealer makes more margin on the used vehicle subscription as the monthly write down for depreciation is usually far less. Dealers, also, of course, are uniquely suited to service and maintain used vehicles, especially franchise stores of their vehicle brand.
So, in summary, the small commercial customer gets a better equipped vehicle, for less money, without any long-term financial commitment, no personal guarantees and doesn’t have to go through the process of even revealing financial statements or needing to “get bought.”
The business can contract with an app and pick up its vehicle the same day, and expand or contract its fleet as it sees fit, or cash flows allow, and never have to worry about acquiring its own insurance, maintenance service, etc.
The dealer gains a customer, or more volume from a current customer, makes more money on a monthly basis than on a lease or purchase term, and, when the vehicle is returned, has the option of renting it again, putting it back on his or her used car lot for a higher profit, as the vehicle’s cap cost is written faster than its depreciation curve.
All and all, it does seem as if the commercial application of a subscription best fulfills the needs of small business, from mom-and-pop establishments on up to medium sized companies that have varied vehicle needs. Perhaps this is where the new world of subscriptions may be heading.
by John Possumato
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