The Automobile Market influenced by Netflix: Do Vehicle Subscriptions capture Germany?
The Germans’ favorite means of transport is still the vehicle. 77% of all households own at least one car.
However, this is going to change. Global sales figures are stagnating. The proportion of car owners between the ages of 15 and 25 has fallen drastically in recent years. This trend is made even clearer by the fact that potential car owners will fall to around 1.5 million by the year 2020.
Why is it that Millennials are no longer as interested in owning a vehicle, as previous generations were?
The main reason is cost: new cars are becoming increasingly expensive and maintenance costs are rising. 29% of the millennials would sell their car if the costs continue to rise. In other generations, this figure is only 10%. In addition, car purchase becomes less attractive for millennials, because there is a higher proportion of students, they found families later and the more extensive public transport often covers the needs in urban areas. They also place more value on living closer to their place of employment and all other important places. Corresponding to this, there is no serious need for owning a vehicle.
Because millennials focus on cost and convenience, their willingness to use car sharing or similar services, is almost twice as high compared to previous generations, as long as said services are readily accessible. Demand for alternative mobility concepts is increasing and usage patterns are shifting away from car ownership and more towards “pay-per-use mobility”.
Shared Mobility on the Rise
Ridesharing, ride-hailing, and car sharing are no longer unknown terms in this context of “pay-per-use mobility”. In comparison to ride-hailing such as Uber, which has legal problems in Europe due to driver license conflicts, ride sharing platforms such as BlaBlaCar, and in particular car sharing such as car2go, have already become well established in Germany. At the beginning of 2018 over 2 million people in Germany used car sharing and its availability also rose due to an increase in the number of cities offering car sharing. The trend continues to grow. The advantages of alternative mobility models, such as car sharing, become visible at distances of over 800 km per month. At this point, it can be cheaper than owning a vehicle.
The increase in demand for these models can be seen by the figures of the German CarSharing Association: car sharing users have almost doubled between 2016 and 2018. It is also predicted that ride sharing and ride-hailing will increase from this year’s 4.9 million users to 7 million by 2022. The shared mobility services market is also predicted to grow by up to 35% annually until 2020. Looking at America and China, where the market share is four times greater than in Europe, it is clear that the potential for shared mobility in Germany is far from exhausted.
Nevertheless, sharing services are seen more as a complement to car ownership and not as a substitute.
Overall only one out of two people is not at all or only little convinced to use a service like this. In contrast, the majority of today’s car sharing riders have the intention of significantly increasing service usage.
A point of criticism is that car sharing is simply not available everywhere and if it is, there is usually a long distance to the nearest vehicle. There is always a risk that a vehicle is not readily available and trips with multiple stops are impractical to implement. In other words, sharing services offer less flexibility than owning. With ride sharing or ride hailing you have to spend time with strangers, which not every consumer finds attractive.
The main factors influencing the choice of mobility types are price, reliability and comfort, according to McKinsey & Company.
Concerning the last two factors, the own car is ahead of other types of mobility. The flexibility, reliability, and convenience of owning your own vehicle is still in high demand, however, the cost is a big downside for millennials.
Generation Netflix in every Branch — also in car ownership
A new mobility concept — car subscription — feels like owning a car, but without the inconveniences that come with it. With car subscription some providers transfer the habits one has already developed when using smartphone contracts, Netflix and Spotify to the automotive industry. This means that a car can be booked for a certain period of time without any additional costs or responsibilities. With some service providers the monthly payment already starts at about 140€. Included in this price is the car, warranty, insurance, maintenance, taxes and in some cases a breakdown service. Unlike leasing, there are no further costs or expenses (apart from refueling) and usually a deductible for the insurance in the event of damage. All this can be organized easily online or even by app. You can search for a car, reserve it, plan a pick-up, change the car model, cancel or renew the subscription and even conclude a contract digitally via e-signing, as in the case of Fair.
Fair is a provider in the USA which offers relatively new used cars from all vehicle segments in cooperation with dealers via an app. The insurance can only be booked as an option and the time frame is also very flexible. The subscription price is valid per month, but you can return the vehicle whenever you want to, whereupon the monthly payment is settled proportionately on the days.
Germany follows
Also in Germany there are already service providers who follow this concept. Cluno, for example, also offers used cars from all segments. However, the minimum subscription period is longer with six months. Electrify, in turn, offers electric small cars, to which an electricity-flat can also be booked directly. OEMs have also become aware of this business model. Care by Volvo offers the two models Volvo XC and Volvo V60 as new cars with a minimum term of 24 months from 700€ per month. The new Polestar 1 is even only available as a subscription model. Other car manufacturers are also experimenting with pilot projects. With Access by BMW, BMW wants to test the concept initially in the USA. Daimler will enter the market with Mercedes me Flexperience. Luxury manufacturer Porsche also offers a selection of their vehicles for a monthly instalment.
Compared to the startups, OEMs such as Volvo and car rental companies have some advantages, because they are already established in the market and, despite the diesel crisis, have the trust of customers. On top of that, there are already process structures for delivery and repair. The new market participants, on the other hand, have to completely build their brand, customer loyalty, cooperation and processes and consequently have considerably higher expenses and costs. This reduces profit for start-ups. The chances of success with this business model are therefore much higher with OEMs and car rental companies than for start-ups.
The car subscription models combine the advantages of the different business models: Reliable, practical and comfortable like your own car, yet more flexible and unbound than leasing and just as little responsibility, worries and costs with regard to maintenance as with sharing services. This business idea is particularly well received by the younger generation.
Even though one’s own car will account for a large share of the market in the future, it is clear that new mobility concepts will be developed more often. For customers they will become increasingly popular and will make vehicle ownership more and more superfluous. Håkan Samuelsson, CEO of Volvo, is of the same opinion:
Sources: PwC, Deloitte, German CarSharing Association, Roland Berger, DAT Group, McKinsey & Company, puls Marktforschung
