VANCOUVER – Subscription services are new to the auto sector and the jury’s still out on whether they’re a paying proposition, but Christian Chia thinks his business model will fly.
The CEO of Vancouver-based OpenRoad Auto Group has launched Portfolio, touting it as the first multi-brand luxury-vehicle-subscription program in Canada.
Portfolio will feature 25 vehicle models from nine of the dealer group’s 19 brands, including Audi, BMW, Genesis, Jaguar, Lexus and Mercedes-Benz and Porsche. That differentiates it from others in the nascent field that limit choices to a single nameplate.
“That versatility, that broad spectrum of brands, I think is going to be unique to us,” Chia told Automotive News Canada.
The service area includes Metro Vancouver and a corridor extending 70 kilometres east to Abbotsford, the practical limits of Portfolio’s concierge service that will deliver vehicles to the customer, who book using an app.
Subscription services, a response to mobility innovations such as ride-hailing, barely have a toehold in Canada so far.
Care by Volvo, a limited program launched in October, has a handful of subscribers, Volvo Cars Canada said.
Porsche Canada is considering introducing its Passport program in the Toronto market.
Book by Cadillac was expected to arrive in Canada 2019 but the limited, two-year-old U.S. program has stopped taking new subscribers and reportedly is being retooled.
AutoOne, a sales and leasing company with locations in Toronto, Vancouver and Halifax, offers recent model-year vehicles by monthly subscription.
In the United States, there are roughly 40 dealer or third-party subscription programs and fewer than 10 operated by automakers, according to data from Maryann Keller & Associates. Keller, a prominent U.S. analyst, has questioned the profitability of subscription programs for automakers in the American market despite their high fees.
AUTOMAKERS TURNING INTO ‘RENTAL COMPANIES’
“Automakers generate profit by wholesaling cars to dealers, in volume,” Keller wrote in a December 2017 article posted on LinkedIn. “With subscription programs, automakers are effectively turning themselves into rental companies with all of the risks that entails including, vehicle depreciation, maintenance, liability and eventual re-marketing of used cars.”
Rental companies appear not to have embraced subscription yet, despite having the infrastructure to operate them.
“We rent cars daily, weekly or by the month, and many of our customers love trying new vehicles,” Steve Tudela, senior vice-president of Enterprise Holdings, which includes the Enterprise, National and Alamo rental brands, said via email.
“We regularly look at new programs and products — including subscription services — based on customer feedback, but it is a little early yet for us to affirmatively commit to the product at this time.”
Others are more bullish. U.S.-based Flexdrive, which provides a subscription technology platform for dealer and fleet operators, will offer white-label “solutions” through partnerships in major Canadian cities, CEO Jose Puente said in an email.
“What we’ve learned about the unique challenges of financing and owning a car in Canada leads us to believe adoption and interest may come at an accelerated pace compared to the U.S. market.”
‘NOT FOR EVERYONE’
Metro Vancouver has the market conditions for Portfolio to succeed, Chia said. Its population density is increasing, with more people living in smaller homes with little garage or parking space. The younger demographic is less committed to vehicle ownership and the luxury vehicle segment is a major factor in this market.
Chia said Portfolio should be profitable in the longer term.
“We view this as a luxury service, so this comes at a premium price. It is not for everyone.”
Scale is important, he added. Portfolio’s fleet of about 50 vehicles is expected to grow with the subscriber base, with an initial ratio of 1.3-1.4 vehicles per subscriber dropping to about 1.2.
“I think one of the appeals of a program like this is you want to feel like you’re in a new car every time,” said Chia, who has not ruled out expanding the program.
“We were going to start in the luxury segment before we consider other segments.”