Subscription-based ownership of cars: Many enquiries, but conversion into sales, slow

While the subscription-based model of owning cars is gaining traction in terms of increased enquiries, actual conversion to sales remains low. The subscription-based model allows customers to subscribe to a car for a monthly fee as an alternative to an outright purchase.

Notwithstanding the poor conversion rate of enquiries, companies are planning to take their subscription-based models to new cities and expand the range offered, given the increasing customer affinity for different usage models.

The subscription-based model of owning cars does not involve down payment, and the monthly fee is typically all-inclusive, covering full maintenance, registration costs, insurance and roadside assistance. The duration can range from around six to 48 months, depending on the user’s choice. The idea is to target customers, especially in urban areas, who would want an asset-light alternative to using a vehicle, as opposed to the hassle of buying a car, making a hefty down payment, and resale at a later stage.

Large number of enquiries

“The number of enquiries for cars under the subscription-based model is going up dramatically. But it’s taking a bit long for actual conversions because it’s a new concept...but there is a trend of increasing number of consumers looking for subscriptions,” Shashank Srivastava, Executive Director (Marketing & Sales), Maruti Suzuki India, told BusinessLine .

Maruti Suzuki Subscribe was launched in July 2020, initially in Delhi NCR and Bengaluru, and later in Pune and Hyderabad. A few months ago, the model was further extended to eight cities in total. Though Maruti has received more than 12,000 enquiries under the model, it has only sold around 50 cars on subscription, said Srivastava.

“While data on sales through this mode is unavailable, our market interactions suggest that less than two per cent vehicles have been sold through the subscription option (over the last one year),” said Hetal Gandhi, Director, Crisil Research. Subscription is currently at a nascent stage in India and is currently not cost-competitive, compared to buying a vehicle on loan, she added.

However, automakers and analysts say the model has growth potential, especially due to the impact of the pandemic. With the increased need for personal mobility brought about by the pandemic, as well as the lower income levels, the subscription model may find greater traction, said Srivastava.

For instance, Mahindra & Mahindra sold more cars through the subscription-based model in October-December 2020, than it did in the entire FY20, said Veejay Nakra, CEO, Automotive Division. “Post the lockdown, we have witnessed a shift in customer preference towards shorter duration, lower commitment subscriptions,” said Nakra. M&M introduced a subscription-based model in September 2019.

Maruti plans to expand its subscription-based model to 14 cities by the end of March and to around 20 cities by June-end. In the next couple of years, it plans to expand this to 40-60 cities, he said. While it started off by offering five of its products under this model, it has now expanded it to over ten models.

Tata Motors, which introduced the subscription model for the Nexon EV last year, also plans to extend the model to its ICE range of vehicles, said Pankaj Jhunja, Head-Mobility Services, Tata Motors. Currently, it offers the Nexon EV on the subscription model in five metro cities, and this is also being expanded to other cities in a phased manner, he said. “This will be rolled out in the coming weeks and we expect to expand our target group from entry into these cities,” said Jhunja.

Deloitte Global Automotive Consumer Study 2021, which came out on January 21, found that 69 per cent of Indian consumers are willing to try subscription-based ownership and servicing of different models from the same brand. “The emerging trend, at the back of the pandemic, which has left them more cost conscious, is seen the highest among Indian consumers, followed by China and the Republic of Korea,” it said.

With 37 per cent consumers planning to buy a car in India much earlier than planned, the subscription model is a viable option for the consumer, OEMs as well as distributors, indicating a greater demand to mobility option in the marketplace, it further stated.

In the US and European countries, the subscription-based model has not picked up as was anticipated, said Srivastava. “We are enthused by the very large number of enquiries but not so much by the conversion levels. Since it’s a new concept, I think it would take some time for this concept to catch on. Once it does catch on, it can become much larger.”

Going ahead, the subscription-based model could gain traction if cost economics become favourable, said Gandhi.

“Having experienced the pandemic and the economic uncertainty it brought, the subscription model does make sense as there's no long-term financial commitment associated with it. Alternative models of ownership are here to stay and grow. More carmakers are expected to join and will give prospective customers choice,” said Suraj Ghosh, principal analyst - South Asia Powertrain Forecasts, IHS Markit.

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