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Brien Joyce Vice President EFG Companies

Contributing Author:
Brien Joyce
Vice President
EFG Companies

Rapid changes are taking place in the way people buy things. The U.S. is moving toward a subscription-based economy, driving companies to focus less on individual sales, and more on gaining recurring customers. This trend is seen across industries, in companies like Netflix, Blue Apron, Spotify, Amazon, and now BMW, Mercedes, Audi and General Motors. But, how big is this market, and who is signing up for these subscriptions? More importantly, how does this subscription-based economy impact the retail automotive industry and the lenders who support it?

The subscription e-commerce market has grown by more than 100 percent per year over the past five years, with the largest retailers generating more than $2.6B in sales in 2016, up from $57.0M in 2011. E-commerce subscribers are most likely to be 25 to 44 years old, to have incomes from $50,000 to $100,000, and live in urban environments in the Northeastern U.S. Women account for 60 percent of subscriptions. But men are more likely to have three or more active subscriptions suggesting that men value automated purchasing to save time. These numbers track well with the potential prime auto loan customers that lenders crave, and they are reflective of the coveted Millennial consumer base.

There are numerous reasons why Millennials utilize subscription models, but one of the primary reasons is that this generation sees a greater financial benefit in accessibility over ownership.  Nearly 60 percent of Millennials would prefer to rent a home than buy one. They are also the leading proponents of the sharing-economy (e.g., Uber) – thanks to their financial position. Aside from record amounts of student debt, Millennials earn on average 20 percent less than Baby Boomers did at the same stage of life, according to the Federal Reserve. This disparity is the driving force for why Millennials did not run out and buy vehicles and homes as soon as they graduated high school and college.

Most Millennials prefer to access whatever type of product or service they want that’s within their means, rather than be tied to one purchase. Hence, the rise of the subscription economy.

Lender Leverage

Lenders are certainly familiar with subscription models. Credit cards could be considered the ultimate subscription. However, transitioning this thinking to auto loans is a new model. Luxury manufacturers such as Porsche and Volvo are offering their own subscription service. And other joint ventures including Carma (smaller used vehicles from Ford and Chevrolet), FlexDrive (Cox and Holman Automotive), and Book by Cadillac offer consumers a variety of options.

Offering subscription services can be an excellent approach to Get Y-lingual® and attract the elusive Millennial consumer. Subscription services allow Millennials to spread payments out without going further into debt, as well as start and stop a service whenever they need to, and some even allow customers to skip a month without completely canceling the subscription. Some would argue the subscription service could offer a lower risk model for customers with no or questionable credit histories.

So how do you plug in? Just as lenders include protection products for their credit cards, the same should be included for auto subscription services. The same trends that could affect a person’s ability to make an auto loan payment, could affect their subscription payment. By offering consumer protection products like a vehicle service contract or vehicle return protection on a subscription service, you can further insulate your institution from risk while also creating an additional revenue stream.

With more than 40 years of experience in the retail automotive industry, EFG Companies can help your institution stay at the forefront of the changes affecting your industry today. Contact us today to learn how to extend your reach with the Millennial consumers.

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