Mercedes-Benz launched its vehicle subscription service on Tuesday, joining a fleet of competitors including Porsche, BMW and Cadillac.
The program, Mercedes-Benz Collection, gives subscribers access to 30 model variants for a monthly fee. Mercedes-Benz USA and the brand's financial arm, Mercedes-Benz Financial Services USA, jointly launched the two-year pilot in Nashville and Philadelphia.
The subscription program allows "our customers to drive different vehicles for different occasions," Mercedes-Benz USA CEO Dietmar Exler told Automotive News. "It provides the luxury of having the right car at the right time."
Automakers are experimenting with subscription programs in a nod to changing realities. Rapid technological advancement in the auto industry, coupled with the emergence of affordable and abundant ride-hailing and ride-sharing services, has put pressure on the historical car-ownership model.
Instead of forcing consumers to buy one vehicle that (often poorly) attempts to meet every driving need, subscription programs allow customers to pick the vehicle for the need -- an SUV for when extended family is in town; a convertible for a weekend getaway; and a compact for the downtown commute.
Mercedes-Benz's subscription program will have three tiers -- Signature, Reserve and Premier -- with prices ranging from $1,095 to $2,995 per month. In comparison, BMW's program -- which has also picked Nashville for a pilot -- ranges from $2,000 to $3,700 a month, while Porsche's service ranges from $2,000 to $3,000 a month.
Mercedes-Benz Collection subscribers pay a onetime activation fee of $495 and can choose from SUVs, crossovers, sedans, coupes, cabriolets, roadsters and wagon models. Each tier also allows access to the company's high-performance Mercedes-AMG models.
Subscribers can access, via a smartphone app, any type of vehicle within their tier with no mileage limitations. The cars will be delivered via a concierge service. The monthly subscription fee includes insurance, 24/7 roadside assistance and vehicle maintenance.
Dealer partnership
For automakers, the subscription programs are a way to lure new customers and encourage existing ones to upgrade models.
"There will be customers who will test five to 10 vehicles [via the subscription program] and then decide to buy one model," Exler said.
Mercedes will limit its pilot to about 70 members in each market. Demand is five to 10 times that, Exler said.
Mercedes expects members to change vehicles two to three times a month and will have an inventory of about 100 vehicles in each market at any given time.
"We will actively suggest customers try our new vehicles" Exler said. "It would be easier for us operationally if you just drive the same car all the time, but that's not fun."
Mercedes expects the subscription program to reach profitability in 12-18 months as the automaker fine-tunes the business model and optimizes the number of vehicles.
"In the first six months, with the high number of vehicles [the biggest cost], it's almost impossible to be profitable," Exler said. "It's more important in the beginning that we deliver the right service."
Mercedes dealers will be an integral part of the subscription program, handling delivery and service of the vehicles. Dealers will get paid to provide concierge service and do warranty and repair work on subscription vehicles. Dealers will also get first dibs to buy vehicles retired from the subscription program.
"It's important that [the program] makes economic sense for our dealers," Exler said. "If not, it wouldn't have a future."
Mercedes declined to say when and where the subscription program might expand beyond the initial markets.
"We are working closely with our dealers and if we can make this successful in these two locations ... we will roll it out to more cities," Exler said.
For the CEO, the success of the subscription program begins and ends with the customer.
"We want to excite our customers," Exler said. "Nothing else matters as much."