GROWTH OF USERSHIP MODELS WILL COMPLEMENT, NOT CANNIBALISE INDUSTRY, SAYS AUTO TRADER
- 80% of consumers always want to have exclusive access to a car
- All new cars will be bought on finance in the next decade
- Over two thirds of consumers think Brexit will lead to increase in prices
The increasing availability of finance and the growth of subscription models is creating a dramatic shift in the automotive industry with the age of traditional ownership coming to an end.
But according to Auto Trader, the UK’s largest automotive marketplace, it’s a mistake to think that car ownership, or indeed the traditional retail sector, will be a victim of the sharing economy. Auto Trader’s bi-annual Market Report, published today, shows that most motorists (80%), especially younger drivers (86% of those aged 16-21), still want exclusive access to a vehicle. The need for independence (80%), an unwillingness to share (51%) and the pure convenience of a car (48%) were all cited as the top reasons for not wanting to give up exclusive access to a car.
Whilst Uber’s fast response time in central London arguably offers consumers a level of independence, generally these are qualities that ride sharing and driver service models (taxis) struggle to deliver, at least on such a wide scale. However, almost every day new players are emerging that can give them that independence, such as Drover’s pay-monthly subscription service or Volkswagen Financial Services’ new Rent-a-Car scheme. Interestingly, many of these models will offer the same level of direct access as finance contracts, but in a more flexible, convenient and cost-effective way.
Finance, leasing and subscription deals are set to fuel the market for new cars in particular says Auto Trader. The Company predicts that within the next 10 years all new cars will be bought via one of these models, challenging the traditional sense of ownership.
It also reveals how the wider economic uncertainty could also play to these new models’ favour. As consumers continue to feel the pinch and remain concerned that Brexit will lead to more general price rises (62% of those surveyed agreed), options to gain exclusive access to cars on a shorter and more flexible term will go some way to sustaining the health of the overall car market.
Auto Trader spoke to 13,500 consumers for its Report. The Report also includes data and insights from Auto Trader’s marketplace, which hosts an average of 55 million cross platform visits from car buyers each month. 98% of motorists who bought a car on finance claimed they owned the vehicle, even though in reality they don’t. Auto Trader says motorists seek the comfort and certainty of exclusive access, or usership, and find it hard to distinguish this from true ownership.
New bundled subscription models and more flexible ways to access vehicles will open-up the market. One in five (21%) consumers are already open to using a less traditional ownership model (cash purchase or PCP). This is a higher trend with Generation Z, those aged 16-21, (35%) who will make up the majority of car buyers in 2040.
Contrary to speculation that the growth of these models signals the death knell for traditional retail, increased popularity of alternative usership models represent an opportunity for the industry. They will make car ‘ownership’ more accessible to more people, will offer manufacturers a new way to get consumers behind the wheel of their cars, and crucially, will complement rather than cannibalise existing retail models.
Auto Trader’s Chief Financial Officer and Chief Operating Officer, Nathan Coe, explained: “The evolving concept of ownership and the growing spectrum of access models represent one of, if not the most, dramatic shifts in the retail landscape. It also marks one of the biggest opportunities for retailers and manufacturers.
“For one access model to win, it doesn’t mean another has to fail; that is, for subscription models to thrive, PCP or PCH won’t be required to collapse. However, as consumers increasingly source their cars in the same way they do their music or movies, the route from business to motorist will need to evolve alongside it. Rather than relying on just traditional sales, retailers will need to facilitate the supply of both new and used cars to service providers, as well as providing new types of flexible aftersales, logistics, and infrastructure services that will be required to operate these new models.”
Retailers could support by prepping, cleaning, repairing, and even upgrading cars on behalf of the manufacturer or service provider. What’s more, showroom parking spaces and overflow car pounds could also double as distribution centres – car sharers need well-located pick-up and drop-off points.
Consumer demand for more flexible alternatives offers retailers a chance to repeatedly monetise new or used vehicles. Some franchise dealerships are already working with manufacturers to offer flexible leasing services. Volkswagen Financial Services UK, Rent-a-Car, lets customers select, book and pay for their car online ahead of collection at one of a selection of retailers chosen for the pilot: DM Keith, Citygate VW, Progress Skoda, Inchcape VW, and Breeze VW.
Mark Forton, Director of Mobility Services, Volkswagen Financial Services UK, commented: “Market trends show us that our customers are moving towards usership rather than ownership. There are many factors to this, in recent years it has been the increase in finance products being used to purchase or hire vehicles rather than buying them outright. The next step of this is customers wanting use of a vehicle for a shorter period of time, or use of multiple vehicles, much like a subscription service.
“Therefore, the need for the retailers to be a part of this is essential as it’ll provide access to customers in the locations that are easy for them.”
And for manufacturers they represent an opportunity to create a new revenue stream for their cars by making them available through their own subscription programs, such as Care by Volvo and Peugeot’s Just Add Fuel. Ultimately, it’s another potentially lucrative channel to utilise their product in a more profitable way – more than a one-time sale.
However, as the landscape shifts from primarily PCP and HP to leasing, subscription and the array of access models, there will unquestionably be new challenges that both retailers and manufacturers will need to adapt to.
Retaining brand-loyalty will be one such obstacle. Today, only 39% of consumers claim to stick to the same three brands when changing their car. This level of loyalty is highest amongst those aged 22-34, but still less than half (47%). With the shift from a two to three-year ownership cycle, to monthly or even weekly, the opportunity to regularly switch brands will make it even more challenging for brands to ‘own the consumer’. Building brand loyalty means understanding and addressing what individual consumers need, whether this is reassurance or inspiration, and responding to it.
David Green, LYNK & CO’s Chief Digital Officer, commented: “Our core brand objective is to remove the things that consumers hate about owning a car and add the things they love. And a big part of that is how our customers access our vehicles. That’s why when we roll out across Europe next year, we’ll focus on what we consider to be a true subscription model, and not what is often a dressed-up leasing contract.”
Coe concluded: “The industry has been in a period of transition for a long time, this is just the next big step. The change will be gradual, but inevitable none the less. The way in which retailers and manufacturers respond to these changes today, will define their success tomorrow.”
To download the Auto Trader Market Report, please visit: https://plc.autotrader.co.uk/press-centre
Auto Trader partnered with Join the Dots, an award-winning consumer insight research agency, to analyse and reveal the car buying behaviours, feelings and expectations of a nationally representative sample of 3,000 adults aged 18+. In addition, we surveyed a boost sample of 200 16-17-year olds to allow us to focus in on the ‘Brexennial’ generation and understand whether they expect their lives to follow a different path to older generations.
Additionally, Auto Trader also partnered with strategic research consultancy Acacia Avenue, surveying a nationally representative sample of 1,000 UK motorists, as well as an additional 9,500 Facebook users, on their opinions and attitudes towards electric and hybrid vehicles.