The Biggest Hurdle For Subscription-Based Car Sales? Educating The Consumer

Getting a new car can be a hassle. After the test drives, haggling, and paperwork, there’s still the need to maintain and insure it for the length of its life or lease term.

It’s no secret that younger drivers increasingly prefer hailing an Uber or Lyft to the onerous shopping process. They also fear committing to a single model when they actually want a convertible for summer, an SUV for winter, and a pickup truck on moving day.

Hoping to stanch widespread defection to rideshare services, brands including Volvo, Porsche, Cadillac, Mercedes-Benz, BMW, and Jaguar Land Rover have introduced app-based subscriptions with month-to-month lease terms that allow users to try different vehicles. It’s too soon to say whether they’ll find traction with would-be car owners, but that’s not stopping smaller entrants - as well as national rental companies and dealer groups - from trying to cash in on an emerging market, too.

Detroit-based Mobiliti, a startup headquartered down the street from General Motors, bundles short-term leases starting at $550 per month. Forbes spoke with Tarun Kajeepta, the company’s chief operating officers, about challenging industry giants on uncharted territory.

 

Where do you see the market for subscription services heading?

A year ago, nobody knew what a car subscription was, but the concept is catching on. Just like you can subscribe to movies, groceries, clothing or grooming products, you can subscribe to a car, truck or SUV. Through our app, customers can subscribe to a vehicle in minutes and drive it for as long or as little as they like, from standard makes like a Chevy Cruze to upscale luxury vehicles such as the Land Rover Discovery. A big part of the challenge is the consumer education around what it actually costs to own a car. Consumers think about their monthly payment and say, ‘I can lease a car for $300 a month, so why would I subscribe for $500 a month?’ What they're often forgetting is that they're paying on average $150 a month in insurance and $1,000 a year in vehicle maintenance and registration fees. When you add it all up, subscription is often cheaper or on par with what they are paying today, so we need to focus on educating the consumer.

Who is the target market?

When we started out, we were targeting folks who needed a car for a few months, like a student on an internship or home for the summer, or snowbirds with residences in multiple locations. However, we’re seeing that our offering really is a mass market product. People are just sick of dealing with owning a car, dealing with maintenance, and the high costs of insurance. They would rather make one payment each month and have the flexibility to swap vehicles whenever they like.

How can a startup compete with major automakers and other industry behemoths?

The manufacturers seem to be getting most of the attention, but their price points are the highest and they offer the least choice to consumers. Not to mention their programs are making many dealers nervous as they feel they are being cut out of the equation. We offers consumers a high degree of choice, and we partner with dealers, driving leads and aligning incentives. We don't just offer a software solution. When you can offer a monthly subscription for around $550, the service becomes a practical option for most car owners, and that's really our goal.

CarsJaclyn TropForbes