Retailers quietly consider subscription options

For at least six months in 2018, Sonic Automotive Inc. had a team working on developing its own vehicle subscription service using Clutch Technologies' platform.

The nation's fifth-largest new-vehicle retailer had studied the idea even longer than those six months. But instead of launching its own initiative, Sonic opted to scrap its plans, in part so it could concentrate on expanding its EchoPark used-vehicle superstore business.

That decision doesn't "say whether or not a subscription model is a viable option," Sonic President Jeff Dyke told Automotive News. "It's just for us, clarity of our model and less complexity was more important to us. So we eliminated everything that we could so that we could just focus on taking EchoPark where we need to take it and maximizing the potential of the Sonic stores at the franchise locations."

In February 2019, Sonic announced it had cut a number of projects — subscription was part of that — as it worked to shave costs and trim corporate and regional staff by more than 6 percent.

And Sonic isn't alone among the big public dealership groups. For the most part, the publics have remained fairly quiet when it comes to subscription services — programs that typically bundle the cost of vehicles, insurance, maintenance and roadside assistance into a monthly payment and offer the ability for consumers to swap vehicles. Sign-up usually is done through mobile apps.

But some of the public groups are exploring options.

Lithia Motors Inc. of Medford, Ore., confirmed it is operating subscription pilots in select locations, but a spokesman declined to comment further.

And Asbury Automotive Group of Duluth, Ga., will acquire Park Place Select, a luxury-vehicle subscription service in the Dallas market as part of its $1 billion acquisition of 10 Park Place dealerships. That deal is expected to close by the end of March.

Asbury CEO David Hult told investors in a December call that he sees growth opportunities in subscription.

"This will provide us an ability to explore this new selling method in more detail," Hult said.

At least three public retailers have relationships with Fair, a fledgling used-vehicle subscription service that announced a restructuring last fall.

Penske Automotive Group in fall 2017 invested in Fair. It sells used vehicles to Fair and also services vehicles for Fair customers, a Penske spokesman confirmed.

And AutoNation Inc., the nation's largest new-vehicle retailer, partnered with Fair in November 2018 by offering Fair's service at its California dealerships. It was expected to expand that service to other markets in 2019 such as South Florida. AutoNation did not respond to requests for comment.

Group 1 Automotive also has sold vehicles to Fair, but that is on pause while Fair reorganizes its business structure, said Pete DeLongchamps, Group 1 senior vice president of manufacturer relations, financial services and public affairs.

A Fair spokeswoman declined to comment.

Some publics, such as Sonic, Penske and Group 1, have participated in pilots with automakers that have launched their own subscription programs.

Group 1 helped Audi of America launch the Audi Select subscription service in September 2018 in the Dallas and Fort Worth markets in Texas. The Audi program is available at five dealerships there, including Group 1's Audi Fort Worth and Audi Grapevine.

"Thus far we are encouraged by the execution and processes," DeLongchamps said."There are clearly some learnings, but we look forward to working with Audi and [its Silver Car rental program] team as we work towards providing our customers with a seamless alternative to the traditional purchase model."

Penske in September confirmed participation in an automaker subscription pilot at one store but declined to identify the brand or location. Penske President Robert Kurnick also said in September that the nation's second-largest new-vehicle retailer had looked into being a subscription provider itself but found it couldn't make it work financially.

Sonic has ongoing pilots in the Nashville market with BMW and Mercedes-Benz.

BMW in April 2018 started Access by BMW at Sonic's BMW of Nashville store in Brentwood, Tenn. Sonic manages the vehicle fleet, provides maintenance and handles customer deliveries.

The Mercedes-Benz Collection subscription program runs through Sonic's Mercedes-Benz of Nashville store in Franklin, Tenn.

Sonic declined to provide customer figures for each program, but Dyke said last year that there had been more customers for the Mercedes-Benz Collection in Nashville than Access by BMW, which he believed came down to pricing.
"Nashville for BMW and Mercedes-Benz is a petri dish, right? And so they're just studying what works, what doesn't work, what's the right inventory to put in, what should the payments be," Dyke said. "And they're learning a lot as they go along, and they're making adjustments. And so I think that it's going to be something that is viable for them over time. But they've got a long way to go before they are ready to launch a product nationally."
Mercedes-Benz in June last year expanded the Mercedes-Benz Collection to Atlanta after launching in 2018 in Nashville and Philadelphia.

Dyke said Sonic is open to talking with the brands about expanding subscription options in markets where Sonic has stores.

As for its own service, Dyke said: "It's on the shelf, and I don't know if we'll ever pull it off the shelf."