There is more than one way to skin a cat. As proverbs go I feel it’s a slightly brutal one. Maybe ‘more than one way to prepare a meal using eggs’ is kinder to cats, if a little less catchy. Anyway, you get the drift. That old maxim springs to mind when looking at some of the latest schemes automakers are devising to get you behind the wheel of their vehicles and paying for the privilege.
The car company does not have to go exclusively down the traditional route whereby the customer buys the car from a dealer and owns it before eventually selling on the much depreciated asset years later. If they buy on finance, even better. It is worth remembering though, that the established selling model has always been augmented by other routes to market. Car rental companies have been around a long time. Similarly, fixed-term leasing contracts – for companies and individuals – have long held a significant place in the car market.
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However, we do seem to live in a world that is rapidly changing, boosted by the opportunities that enhanced personal connectivity brings. Why own an asset when you can timeshare it, call it up on an app and have your access taken care of by a very manageable monthly payment? And, maybe, the offering to the customer can be presented in an innovative manner that generates some excitement. Why pay to own an Audi A4 saloon when a monthly outlay means you can go cabrio or top-of-the-range sports if the mood takes you? You can perhaps have access to something akin to an automotive wardrobe.
Care by Volvo is an interesting one. It has been introduced first on the XC40 and Volvo Cars says it differs from a full leasing package in a number of ways. Care by Volvo will, depending on regional availability, offer a ‘range of digital concierge services’, such as fuelling, cleaning, service pick-up and e-commerce delivery to the car. Care by Volvo customers will be able to share their car with friends and family with a new digital key technology. Care by Volvo will also allow customers to switch cars temporarily depending on their needs.
Tellingly, Volvo describes private leasing as ‘an entry level offer without any additional services included in the price, while even full service leasing covers only parts of the services available in Care by Volvo’.
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Of course, the automaker still has to attempt to generate a profit margin and there’s the rub. The ‘hassle-free’ offering is inevitably going to be more costly to provide than a basic leasing package. It’s not going to be cheap to access a car via a monthly subscription that allows customers to enjoy their car ‘whilst Volvo Cars handles everything else’. In the UK, Care by Volvo on the XC40 is GBP629 per month for 24 months. Monthly leasing (personal contract) on the XC40 comes in at around GBP220 a month, including VAT. That’s a pretty hefty difference for the Care by Volvo add-ons. And renting – on whatever basis – won’t appeal to everyone. Some customers will still prefer the traditional route of owning the asset rather than renting it – even if it sits idle most of the time. The point for the car owner is that the car is there and ready, on-demand, personalised. Hell is other people etc (it can be quite deflating to get up from your seat on a bus and realise you have been unwittingly sitting on a messy eater’s lunchtime debris – Yanfeng is a supplier aware of this emerging sensitivity in car sharing).
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By GlobalDataBy 2025, Volvo wants half of all cars it sells to go through the ‘Care by Volvo’ subscription service. It’s that significant in its business plan.
It is certainly going to be interesting to see how far the sharing economy goes when it comes to transportation. We will certainly see fragmentation in terms of solutions and market demand, so the task for companies is to calibrate product offerings to meet emerging needs. Agility of product offering will be key. I suspect though, that one eye needs to be firmly maintained on not throwing the baby out with the bathwater. There will still be plenty of business to be done selling cars to people who want to own them, even as new seams of demand become available to mine.
To come back to the cat proverb, there may well be more than one way to skin a cat, but some are more troublesome than others. On second thoughts, I definitely prefer the eggs metaphor. Successfully preparing an omelette for lunch requires more skill and takes longer than scrambled eggs on toast, but sometimes you are in a hurry. Needs must. The profit margin-making options for automakers are shifting, but we don’t yet know exactly how they will develop, how quickly or where the money-making sweet spots are going to be. Carmakers have to look for them though; the race is on. The next ten years are going to be fascinating.
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Geely’s Volvo Cars aims for half EVs, half subscription sales by 2025
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