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When it comes to the automotive industry, there has been little change over the years when it comes to the financing options available for consumers. In fact, there really hasn’t been any new options introduced into for potential customers since the 1960’s when automotive leasing was added as a third option along with paying with cash or taking out an auto loan.
But times are changing and so too is the automotive sector. Our modern economy is now dominated by technology and heavily influenced by millennials who are now entering their peak earning years. They are not as comfortable with long-term financial agreements as the generation before them were, or share the same sense of value that long-term ownership of a vehicle once provided. With technology changing the very nature of what it means to own a car, automakers have had to embrace new, streamlined approaches to car ownership
One of the most notable examples of this is ownership by subscription, where those in need of a vehicle simply subscribe to a program and receive a vehicle as well as maintenance and other services for a single price. The price is not attached to ownership of the vehicle, nor does it have a residual buyout amount at the end of the term.
One of the first subscription services to be offered in Canada comes from Volvo, and is called Care by Volvo. Launched in 2018, the program has been received positively by potential Volvo owners. To understand more about the program in general as well as how subscription programs may play a larger role in vehicle sales going forward, I spoke at length with David Carroll, Director of Sales and Marketing for Volvo Car Financial Services – America’s during an interview we had over video conferencing in mid-May.
Note: Interview has been edited for clarity, context and length only.
EN: Tell me about the rationale that was behind Care by Volvo in the first place?
DC: I think the rationale was truly trying to identify what consumers are looking for and how that consumer process is evolving. Consumers are looking for a unique or different way to experience vehicles and vehicle ownership, and Care by Volvo is our solution to that in a subscription model. While we still maintain the ability to keep our retailers involved in the overall process, we allowed a digital path for consumers in a very clear transparent way. We offer use of a vehicle in a very short-term way, with all services and products included, no additional negotiations, great pricing and consumers can go online to pick what they want without much concern or long-term commitment
EN: So, this was predicated by Volvo observing a change in consumer desire, or their behaviors towards car ownership?
DC: Really it was. It was more of Volvo as a as a global organization looking at younger consumers and how this new generation of car buyers are just looking for a simple way to do things. It’s now less about owning things and more about just being able to use and experience them, and experience is really important to us.
EN: Do you see this as targeting a different type of consumer as opposed to someone who may go towards the more traditional methods of financing or Leasing?
DC: I think when we originally launched it and I can speak specifically with regards to Canada, I really thought it was going to be completely younger demographic of consumer. But what ended up happening is that we had all ages go towards the program. It wasn’t just those in their twenties and thirties; we had people in their thirties, forties and then even in their fifties really attracted to the program, so we had a broad spectrum of consumer.
EN: Do you see this as a general trend with respect to the changing landscape of the automotive retail Market?
DC: You see a lot of a digital trends occurring and Care by Volvo is certainly part of that digital Trend. The consumer is online so much now, so typically when they walk into a store or a dealership, they’ve already done all of their research. Whether they are looking for Volvo truck financing solutions or a sedan to purchase, they know exactly what they want, how they want it, and what they should be paying. This just helps along that process. I think we’re always going to have those consumers that are more interested in a cash or financed or leased transaction. Subscription provides an alternative to them, but we want to say that however you want the car we want to provide a solution for you.
EN: I know you said there’s always going to be a place for traditional financing, but do you see something like this subscription program becoming more the dominant way going forward?
DC: I think in the near-term it won’t become dominant, but in the long-term I think it will become a bigger and bigger part of our business. Leasing is a large percentage of our business, and I think that will become less and less as we move toward more subscriptions, as will financing. Subscriptions will become a big part of our business over the next 5 to 10 years, but there will always be a need for both leasing and financing as well.
EN: COVID-19 has had a dramatic impact on the financial aspects of vehicle ownership. Do you think something like this subscription program could be helpful, or still a hindrance to the people at this time?
DC: I think it would be a helpful program because of the short duration of it. If someone is really worried about their long-term financial interests or what their future is going to be like, having a short duration subscription makes a lot of sense.
I think what we’re going to see coming out of the pandemic relates less to the form of payment, but more about the experience on the digital side. I see a lot of movement of consumers moving to the digital side for the complete transaction, which Care by Volvo provides, but we should also be able to provide leasing and financing digital options as well.
EN: Do you think we will get to a point where every part of the automotive retail process from sales to financing to service is done through a digital platform?
DC: Not in the near term. I think that technology will limit us in the next year or two, but I think over time you’re going to see more and more things moving over to a digital platform. From a sales perspective, we still have certain things that have to be done in person, such as verifying an individual’s identity and making sure we comply with all the rules and regulations in place. But overall, the process of the transaction will become more digital.
I still think for the consumer there is a need to touch and feel the car which is very important. And from a sales side, the value of what our retailers provide in allowing individuals to see and touch and feel the vehicle is still an important part of the overall transaction.
EN: What about e-Commerce? How do you see it becoming a part of the automotive landscape?
DC: I think that’s really the next big part. We obviously have some regulatory hurdles to be concerned with first such as being compliant with KYC (know your customer) and AML (anti money laundering) requirements. We need to be able to perform our due diligence in this regard which really dictates much of how we interact. But if you look beyond the financing and regulatory aspects, there’s really no reason why the rest of the entire process can’t be done digitally.
EN: Can you see any additional changes to the financing side of consumer retail automotive that is likely to happen over say the next 1 to 5 years?
DC: I think that subscription itself is going to evolve. There are other manufacturers offering various versions of a subscription program and obviously I think Care by Volvo is the best one, but over time I think we are going to get to a point where everyone’s subscription program follows the same path. Subscription from a financing standpoint I think is going to be a big part of the future, but exactly how it’s going to largely be determined by the consumer.
There are also considerations specifically for here in Canada. How are insurance regulations going to change? What will this look like from one Province to the next and whether there will be any consistency across the board? What services are going to be offered as part of a subscription? We’ve offered wheels and tires, but is that truly a good value proposition for the consumer? Our customers love it, but maybe other customers don’t see the value. So, I think we’ll see an increase in subscriptions over the next 1 to 5 years but we will also see more of a refining of the product.
EN: Last question. What about pooled ownership? Car sharing has shown us that there is a growing number of individuals who are less attached to the idea of vehicle ownership, and subscription programs address that on an individual level. But could you ever see this evolving into some sort of a pooled ownership program?
DC: We could, although there still needs to be someone responsible for making payments from a financing side. We actually tested out a program in the U.S. a while back where we had 5 Care by Volvo units signed to a residential building, where the building itself became the owner of these units. These units were kept in the parking lot, and for the residents the ability to use these vehicles whenever they were available became part of their homeowner’s association agreement.
A pooled ownership can make a lot of sense because you don’t have to own a parking space, you’re not using a vehicle all the time, but you have one available to you whenever you need it. I think it’s a really cool idea that could gain traction. You would need to have some commonality around it and there would have to be some usage guidelines set in place. I know we could provide the product, and we could likely provide a financing solution assuming there is someone that is still responsible overall. But if these issues can be worked out, it certainly provides an interesting and appealing option for some in the future.
The automotive sector is embarking upon some of its most significant changes that it has ever faced. These changes are driven by advances in technology, a need for more sustainable forms of transportation and are influenced by the demographic and economic might of millennials. The financing and leasing landscape is changing also, products like auto refinancing and auto repair loans are emerging. What this all means is that there will likely be more changes to the way vehicles are made, how they are powered and even how we will own them in the next 5 to 10 years then we will have seen in the past 50 years.
The Care by Volvo subscription program is innovative and may well be the first of many similar programs to follow from other automakers in the next few years. For many of us, it may mean that the current lease your signed to may just be the last one you ever have.
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