The rise of electric vehicles is encouraging new challengers into the market who are reassessing the traditional ways of doing business. They’re looking at how and why we buy cars and offering innovative alternatives. Existing players are having to be equally creative in response. Is this the end of car ownership as we know it?
Why Do We Buy Cars?
The obvious answer is to get from A to B whenever we want but if we’re honest, it’s more complicated than that. For many, their car is an expression of their personality, signalling both status and aspirations. Simply put, it makes a statement. Why else would the greatest concentration of SUVs in the UK be located in a small number of London boroughs, including – unsurprisingly – Chelsea? A recent survey in UK consumer magazine Which? found there are 129 car models for sale in the UK which are actually bigger than the average parking space and that accidents and damage caused while parking costs UK insurers £1.4bn a year. Obviously practicality isn’t a buying criteria for a significant minority.
Looked at dispassionately, car ownership makes no financial sense. Aside from a house, a car is the most expensive purchase most people make, unless you are fortunate enough to also own a boat!. Unfortunately, unlike property, the AA estimates the average new car loses 40% of its value in the first year and 60% by the end of its third year. In addition to this depreciation, Chinese-Swedish car brand Lynk & Co claims “cars are only in use 4% of the time.” As I type this from my home office in a typical middle England estate, I can see the drives of five other houses which between them have a total of eight currently unused cars. OK, we’re in the middle of a pandemic but, even during normal times, most of those cars would either still be here or parked in a station or office car park.
However, relying solely on public transport isn’t a practical option for most people outside of the largest cities and I’m realistic enough to acknowledge that we’re not going to renounce our love affair with the car any time soon. Putting aside the psychological and materialistic dimensions for a moment, I’m becoming increasingly interested in the ways in which companies are thinking laterally about mobility and coming up with attractive alternatives to buying a high-cost, fast-depreciating, low-utilisation asset.
Spotting Trends and Leapfrogging the Competition
Until relatively recently, if you didn’t want to buy outright, the only other readily available options were hiring or some kind of leasing scheme. Hiring tends to be prohibitively expensive for anything other than short-term rentals, like holidays or business trips, and is tied to fixed pick-up and drop-off points. Leasing agreements tend to lock you in for between 24 to 48 months. However, suddenly that’s changing, partly due to the pressure from challenger brands and the rise of a younger demographic more comfortable with business models that don’t involve ownership.
The first step was an obvious one – a subscription service that treats the car as a service to consume, rather than an asset to own. These all-inclusive packages, like Care by Volvo, demand no long-term commitment, offer a 30-day trial period, and wrap vehicle tax, service and maintenance, tyres, and roadside assistance into a single monthly payment. A new car is delivered to and collected from your door. All you have to do is fuel or charge it and drive it – and you can cancel with no more than three months’ notice.
Subscription services aren’t new. Peugeot ran Just Add Fuel which included car tax, servicing and roadside assistance in the monthly payment but it was inflexible, tying you to the same car for three years. The new generation of subscription services offer much greater flexibility and are more closely related to hiring than leasing. US company Drover, originally set up in the UK in 2015 to target the market of new Uber drivers, opened its subscription service to the general public in 2018. Big brand car hire companies like Sixt and Hertz also offer subscription services. Most of these schemes allow you to change your car at least once a month, so if you need something with more carrying capacity for a weekend, you’re covered.
Manufacturers had no real incentive to develop subscription schemes until now. It was hard to make the cost model work and deliver a bundled product within budget and they knew they’d be addressing a niche market because the majority of customers wanted to own their cars. Gen Z twentysomethings have a very different attitude towards ownership, renting their accommodation and consuming their music, TV and movies via streaming services. Young professionals don’t want to be tied to assets – it doesn’t fit their lifestyle. They’ll change jobs every couple of years; many intend to work abroad for a period of time. They have a need for mobility but owning a car doesn’t make a lot of sense. Flexibility and convenience are becoming more important decision criteria than the product itself, opening up the market for more innovative business models.
New entrant Lynk & Co is squarely targeting the young professional demographic. It sells its electric cars direct to consumers, its marketing material highlights the car’s internet connectivity, and it offers a subscription model on steriods. Its website reads “More and more people don’t really want a car, they just need to use one. More and more people choose experiences over ownership.” Lynk & Co expects 70% of its customers to subscribe, rather than buy and Vice President Alain Visser describes his customers’ relationship with his company as “like having a Netflix or Spotify account”. The company is pushing the boundaries even further by providing their customers with the ability to share their car with others, thereby reducing the cost of their monthly subscription. The car is made available to borrowers who are registered members of the Lynk & Co “community” using a smartphone app and a digital key.
The COVID pandemic has turned more of us into home workers. Whether we go back to our predominantly office-based working model is yet to be seen, but if we don’t, what impact will it have on car ownership in general and multi-car families in particular? Will we need two or more cars sitting unused on our drive or street? Research commissioned by DS Automobiles, originally part of Citroen, found 36% of multicar households would reduce the number of cars they own, based on their experience over the last 12 months. DS used that data to design a “buy one, get one on demand” service called DS+ which allows anyone who owns a DS car to get access to a second car whenever they need it, for a daily fee. It’s a clever solution targeted at a specific problem – “We can’t get by with just one car but we don’t need two all the time.” It neatly illustrates the power of empathy and clearly understanding the real problems your customers are facing.
How Openminded Are You?
As the default option for mobility starts to shift from ownership to subscription and sharing, the potential ramifications are thought provoking. For example, what happens to the second-hand car market in a world in which no-one owns a car? What if apartment complexes offered a mobility subscription service as well as a gym or a creche? What if the government decided to increase taxation on low-utilisation vehicles being taxed at a higher rate, whilst also incentivising “mobility on demand” subscription schemes? Fewer cars shared amongst more people perhaps?
In a recent COVID-19 recovery survey by Greater Manchester Council, 47% of respondents had had a positive experience on bike and foot during lockdown and wanted to keep on walking and cycling once the pandemic is over. This year has already seen an increase in rental e-scooters hitting the UK’s town and city streets. The cycling lobby has long called for a cycle infrastructure in the UK similar to that in Amsterdam and Copenhagen. Currently cars take up a disproportionate amount of our hearts, our wallets and our real estate. Our need for mobility isn’t going away but maybe the way we achieve it might change drastically over the next decade.
Market disruptors are challenging conventional models by asking better questions and using the answers to develop a detailed understanding of their target market’s needs. changemaker is working with a number of clients, supporting them with these types of questions:
- Do you have the skills to compete and thrive in a changing market?
- How well do you understand your customers and how well does your product or service meet their needs?
- Is someone out there about to do your job better?
The winners in this constantly evolving market will be those with both a personal mindset and with a company culture that regard change positively – the ones who proactively explore opportunities shaped by new technology and changing social trends. Is that you? Do you have what it takes to win in tomorrow’s market?
Here at changemaker, we support organisations and individuals in delivering sustainable and lasting change, especially during pivotal times of transformation. Our 5 Step change model allows us to help identify the changes that need making then bring a structured process to change that fully engages your people and makes change predictable so you can be certain of realising your goals in an increasingly uncertain world.
I’ll be looking to share further thoughts and insights on several other automotive-related topics in the coming months so please continue to look out for further blog posts. As always, if this blog or any of the others has sparked an idea that you’d like to talk about, please get in touch.