FlexWheels sounds a lot like the subscription plans that Cadillac, Mercedes-Benz and other auto brands have been rolling out in the past year. Customers can swap vehicles up to three times a month and don’t have to worry about insurance, maintenance and other hassles that come with traditional ownership.
But there’s a key difference: FlexWheels is run by a Florida dealership group — not an automaker — so its customers aren’t limited to a single brand’s lineup.
Day: Customers want options.
The entry-level FlexWheels plan, which costs $1,100 a month with a one-year commitment, lets subscribers go from a BMW 440i to an Audi A4 to a Cadillac XT5. Have a home project to tackle? A FlexWheels concierge can drop off a Ford F-150.
“We’ve had some discussions with manufacturers regarding this, and they don’t know the answers entirely,” said Erik Day, CFO of the company behind FlexWheels, Warren Henry Auto Group in Miami. “But they will admit consumers will prefer a subscription that offers a wide variety of makes and models.”
Warren Henry, which has nine stores selling 12 brands, sees an opportunity in helping more dealers start subscription plans. It’s developing FlexWheels into a package that other groups can sell to their own customers.
Concierge Isabell Rolf, left, greets Alexandria Kostoff.
“We’re trying to create a win-win solution,” Day said. “Everyone’s telling the dealer your days are numbered. We’re trying to turn it around: Why don’t we bring this platform to us, the dealer network, and give them the strength and the power for this longer-term initiative?”
Few dealership groups have been brave enough to try their hand at subscriptions so far. Only 4 percent of those that responded to a recent survey by Auxilio Group said they offer such a program, but 51 percent said they were considering the idea. Nearly a third said they weren’t familiar with the concept of vehicle subscriptions.
Dealers who have launched subscription services cite a variety of reasons, said Tim York, managing partner of industries at accounting firm Dixon Hughes Goodman, which formed Auxilio with consultancy NCM Associates. Some want to build their brand, others want to offer consumers options outside of personal car ownership and most want to create a new revenue stream.
“If you’re going to put 100 vehicles on the street, it takes a lot of money. So the question is what do you want to be with subscriptions?” York said. “Some dealers want to make money with it, some want to experiment with it and some haven’t even heard of it.”
The cost of launching a subscription program can seem daunting. Buddy Dearman, managing partner of DHG’s dealership practice, said a dealer “should be willing to invest mid-six figures at a minimum.”
Other dealer-run subscriptions
- Park Place Dealerships: The Park Place Select app, powered by Clutch, is available to download now. The service launches May 1 at Park Place Lexus Plano near Dallas.
- Burlington Automotive Group: DriveItAway, launched in February in suburban Philadelphia, is a program that includes customized software and hardware, insurance and training for dealers to rent used cars for $35 a day, mostly to Lyft and Uber drivers. Burlington, which pays DriveItAway 15% of the fee, has sold about 1 car a week through the program.
- Lithia Motors: The nation’s 4th-largest auto retailer is testing a few subscription service models at several of its stores.
Some subscription services stock their fleet with new vehicles, while others employ late-model used cars. It’s hard to say which model is more profitable, because the whole idea is so new.
“Given that most of the subscription service providers have been at it for barely a year, it seems too early to make conclusions about profitability,” Dearman said.
Many variables factor into the profitability of such a program, including the monthly payment amount, how often customers can switch vehicles, and depreciation rates of different brands and nameplates.
“It seems that everyone is still trying to figure out just the right mix of these things for their particular market and customer base,” Dearman said.
Day, the Warren Henry executive, said he believes consumers will pay a premium to access a spectrum of vehicles that is broader than what an individual automaker can offer. “That doesn’t mean a manufacturer can’t come in and offer a subscription model that is financially more compelling,” he said.
Some industry experts predict subscription plans will top 10 percent of vehicle transactions in urban metro markets within a decade. That could significantly change the way dealerships operate and the types of employees they need.
“The role of the salesperson in our industry has forever been engineered around the assumption that someone is buying an asset,” said Adam Robinson, CEO of Hireology, a hiring and retention technology provider in Chicago. “In a world of subscription-based automotive sales, you’re not selling an asset. It’s almost like a concierge. Those skills are very different from a closer.”
FlexWheels concierge Caitlin Smity, right, presents a car to customer April Irene Donelson.
That, in turn, could force dealerships to change how employees are paid, putting an emphasis on signing and retaining customers instead of a one-time transaction.
One interesting question: What happens to the finance and insurance office in a subscription model?
|DealerRater surveyed nearly 10,000 consumers on behalf of Automotive News about their interest in getting a future vehicle via subscription instead of buying or leasing.|
|4%||Yes, but only if I access multiple brands|
|18%||Yes, with the brand I just visited|
|31%||Not sure, I need more information|
|33%||No, I want to own or lease|
|14%||No, for other reasons|
|Source: Automotive News-DealerRater survey|
“Other than a credit check, I don’t know what else F&I would be doing,” Robinson said.
Starting a subscription program, especially while the concept is so new and unfamiliar to most car shoppers, is not a clear-cut decision, said John Possumato, CEO of technology company Automotive Mobile Solutions and subscription service DriveItAway Inc. in Haddonfield, N.J.
“It’s good for luxury dealers in metro areas, but the demand is still relatively small,” Possumato said. “There is only a subset of customers who will pay for that level of convenience and ability to swap and in and out of vehicles and that doesn’t have the parking to own more than one or two vehicles at a time.”
Still, some dealers have decided to be subscription pioneers, rather than sitting back and waiting for more demand to build up first. The stories of four of those pioneers are on this page and pages 38 and 40.
“I can’t predict what the next 50 years is going to look like, but I can predict it’s not going to look like the past has looked,” said Don Flow, CEO of a North Carolina dealership group, Flow Automotive Cos., that started a subscription service called Drive Flow. “If that’s the case, we’ve got to open our minds to a lot of different possibilities.”