Two years ago, we wrote an article outlining the merits and challenges of Car-as-a-Service (CaaS), the model’s gathering momentum, and its possible move into the mainstream. Fast forward to the start of 2022, and a handful of high-profile original equipment manufacturers (OEMs) have abandoned their CaaS initiatives.
Is the movement dead and buried?
Here, we delve into the current state of CaaS, including the impact of COVID, shifting consumer mindsets, and the progress key players are making, as well as why customer experience could play a huge role in the future of CaaS.
What happened to car subscription services?
In mid-2018, Forbes predicted that car subscription programs could account for almost ten percent of all new vehicle sales in Europe and the US by 2026, representing a “rich and ever-expanding pie.”
The idea of a streaming-style service of car “ownership” model seemed irresistibly in-tune with the times, a model perfectly befitting of a burgeoning generation more interested in paying monthly fees than lump sums.
Fast forward three-and-a-half years, and people are wondering what happened to car subscription services, and if the CaaS model is ever coming back. Unsurprising, given that a handful of international OEMs abandoned their CaaS plans in recent years.
Mercedes-Benz, for instance, dropped its Vehicle-as-a-Service initiative in June 2020. Ford sold its subscription arm in 2019. And Cadillac ended its CaaS business model in 2018.
These companies cited several reasons, from poor returns to labor-intensive admin. One could add to that list a lack of awareness, limited access and problems around logistics, too.
And that’s not to mention the pandemic and its impact. Travel restrictions, supply-chain issues and factory closures all meant that the last two years have hardly been an opportune time to launch a new automotive strategy.
However, while it may seem that the CaaS model is dead on its feet before really being given the chance to stand, there are signs that it may be set for a comeback, sooner rather than later.
In early 2016, IBM produced a report claiming that while people still wanted the convenience of cars, they didn’t necessarily want to own them according to traditional models. In fact, their research showed that 42 percent of people were “very interested in subscription pricing.”
It may be six years later, but there’s no reason to suggest that these attitudes have changed. Indeed, from the consumer side, there’s still a very large appetite for what CaaS has to offer.
Furthermore, a McKinsey study estimates that the annual growth rate of global car sales is set to fall from 3.6 percent over the last five years to about 2 percent by 2030.
It would seem that, year on year, fewer people are interested in purchasing cars, while more people are keen on non-committal forms of ownership, creating the perfect conditions for CaaS offerings.
But is that reflected in the market and behavior of OEMs?
Despite the fallout from some key industry players, as mentioned above, several OEMs have persisted with their CaaS offerings. Namely, Care by Volvo and Porsche Drive – two of the most active subscriptions services available on the market today.
In fact, Volvo’s offering – which hit the UK market in September 2020 – delivered more than 2,500 subscriptions in the UK in its inaugural year. That equates to almost 15 percent of Volvo’s retail sales. Globally, they expect the subscription service to account for 50 percent of all revenue by 2025.
This is a significant development, proving that CaaS is more than just hype. In fact, off the back of such success, there are even rumblings that Cadillac and BMW are reevaluating their CaaS offerings.
However, the question remains as to why Volvo and Porsche have succeeded where others have failed.
Customer experience is key
When looking at the details, Volvo’s and Porsche’s success should come as no surprise. Both companies focused on customer experience (CX) when delivering their CaaS offerings in a way that other OEMs haven’t. Their packages are well-known for being simple, fast and easy to use.
Such top-quality CX could be the silver bullet for achieving success with CaaS, explains Jose Ignacio Puente, Managing Partner at Motiva Venture and Santander Consumer Finance. Speaking at Sopra Banking’s SBS Summit 2021, Puente says: “My view is that subscription is inherently about owning the customer experience and how that manifests into a meaningful value proposition.”
For consumers to engage, the digital-first process should be easy every step of the way. Achieving that requires CaaS players to invest in their website and build or improve their app. To outpace the competition, the process must be streamlined, feature-rich and intuitive.
However, creating a successful CaaS operation isn’t as simple as developing a nifty mobile application. Physical interactions – such as drop offs, repairs, exchanges and returns – must be just as straightforward and seamless as the digital technology.
“Those things have to coalesce into a profitable business model,” says Puente. “Who owns the asset isn’t that important. What matters is who can deliver a valuable experience that aligns with the customer’s needs.”
Nina Geiss, CMO of German CaaS firm ViveLaCar, also believes that customer-centricity must come first. “There’s a business case for everyone, and I don’t think there’s a way around subscription anymore.” Owning CX at all the touchpoints is the essence of market-leading organizations; Car-as-a-Service companies are no different.
While it’s clear that a top-quality CX is vital for success in CaaS, with OEMs owning the entire customer journey from start to finish, achieving such a result is easier said than done. For a start, it means making radical changes to existing business models and practices.
Traditionally, OEMs have been more business-to-business (B2B) rather than business-to-consumer (B2C), relying on dealers to manage the customer-facing side of the operation. However, if Puente’s assertion that “subscription is inherently about owning the customer experience” is correct, then they may need to reshape their existing business models. Namely, shifting toward an agency sales model.
The agency sales model goes against conventional sales methods, and is more geared toward new, digital consumer behaviors, while also maintaining physical touchpoints during the customer journey.
Such a dramatic shift creates challenges and fundamentally shifts to the OEM/dealer dynamic. OEMs transition from a business-to-business to a direct-to-consumer model. And, rather than being the endpoint of a customer’s journey, the dealer becomes part of a set of interconnected touchpoints – an “agent”, responsible for distributing and servicing the CaaS market.
For OEMs, transitioning from a B2B organization to an end-customer focused one will not come without its difficulties. It will, after all, require a total culture change, both internally and in terms of the automotive ecosystem. The same goes for dealers operating within the traditional business model. However, failing to do so could have huge ramifications – not just in CaaS, but for prospering in the future of the automotive industry as a whole.
CaaS is indicative of this wider shift. Consumer needs and demands are changing everywhere – people now expect the best-in-class services at the push of a button. And automotive is no different. As for CaaS itself, all the signs are starting to suggest that it’s set to finally live up to its expectations. With roadblocks such as the impact of the pandemic seemingly behind us, and OEMs apparently recognizing the need for excellent CX to make it work, a future where CaaS is a prominent model of ownership could be just around the corner.