Subscription-Based Strategies for Auto Dealerships Grow
Consumer participation in subscription-based programs has skyrocketed over the last few years. From health and wellness to subscription boxes to home entertainment, consumers are showing they prefer to pay a monthly fee for their favorite products and services.
Now OEMs are looking to identify additional revenue opportunities similar to GM’s On-Star and recently launched Maps + subscription-based navigation program, which currently generate over $2B annually for the auto maker. They expect subscription sales to grow to over $25B by 2030.
While this may be great for the OEM’s, how can a local dealership grab a piece of the subscription pie? It may not be as hard as you think.
Dealership subscription maintenance programs are gaining popularity as an alternative to traditional vehicle maintenance. Consumers pay either an annual or a monthly fee in return for basic maintenance items such as LOF’s, rotations, wiper blade inserts, inspections, and vehicle details. For the fee, the subscriber returns to the dealership whenever the maintenance dash reminder is illuminated or at the maintenance intervals specified by the manufacturer.
It differs from a standard PPM plan in that it automatically renews until canceled by the customer.
Additionally, the compounding effect of automatic renewals year after year generates far more income than a traditional PPM that expires and, in most cases, is never resold.
Dealers with subscription maintenance programs in place report an over 70% subscription renewal rate year after year. In fact, because dealership subscription maintenance programs create a captive service model, the retention of these customers is the highest of any retail purchaser.
Let’s Look further, is Your Store Proactive or Reactive?
Dealers are selling more pre-owned vehicles than ever before, and many are off-brand units. Off-brand vehicles are notorious for having an extremely low service retention rate – typically less than 10%. Add in the fact that warranty work is at an all-time low, maintenance intervals are expanding, and the proliferation of EV sales, it’s clear that dealerships are at an important crossroads.
Are you going to be proactive to these changes or reactive?
Some say we now live in a subscription economy and the way people buy goods and services has changed permanently. The consumer mindset is evolving more and more towards value, convenience, and personalized service.
As the subscription model evolves, OEM’s are transitioning from selling strictly products to selling outcomes. You can look at it this way: you’re not selling oil changes anymore – you’re selling the peace of mind that comes from having a well-maintained and reliable vehicle.
Dealers Become Responsible for The Service
Until now, vehicle repair or maintenance was the sole duty of the customer. Scheduling and facilitating the repairs were done (or not done) completely by the consumer. With a subscription model, the responsibility and the related facilitation of the repair or maintenance shifts back to the dealer. The dealer essentially becomes the fleet service manager.
With service absorption rates predicted to decline, a subscription maintenance program will take advantage of the shift that is occurring in consumer behavior and provide your dealership with a predictable – and very lucrative – future revenue stream.
The subscription model is here to stay. Those dealers who proactively adapt and start moving away from the one-time purchase will be in a far better position to grow their business from within and thrive.