Platforms seek partners in subscription services

Several vehicle subscription providers aim to quash pain points some subscription programs face by doling out more data and partnering with the insurance, finance and warranty industries.

Subscription technology platforms such as Clutch Technologies, Flexdrive and DriveItAway are including more data analytics to help clients track vehicle depreciation and fleet values. It's a bid to help clients make timely inventory decisions.

"Our dealers need to be successful in order for us to be successful," said Jose Puente, CEO for Flexdrive, a subscription provider in Atlanta owned by Cox Automotive and Holman Enterprises.

Increased support of the subscription model by related industries is beginning to take shape, some providers said. The evolution is happening even as some platform providers navigate challenging results.

Clutch President Vince Zappa said he has been "pleasantly surprised" by how fast insurance carriers have stepped up. The biggest gap, Zappa said, remains the need for financing products. Clutch, also in Atlanta, is fully owned by Cox Automotive.

Some efforts are underway.

In 2019, Flexdrive and Hyundai Capital America launched a fleet financing pilot. It has three stores and may expand this spring, Puente said.
John Possumato, CEO of DriveItAway, a subscription platform in Haddonfield, N.J., said companies are entering the space to provide floorplanning. They include Ally Financial and KAR Auction Services' Automotive Finance Corp. arm.
Ally confirmed it has provided credit lines for inventory to a small number of dealers.
In 2018, undisclosed companies seeking funding options to acquire subscription inventory approached KAR's automotive finance division.
"The inability to get funding and liquidity for the operator is definitely prevalent," said Amy Wirges, senior vice president of finance for Automotive Finance Corp.
AFC said about 10 percent of its loan portfolio consists of mobility customers. About 10 percent of that group uses AFC's subscription floorplanning offering, which allows operators to keep used-vehicle fleets floorplanned longer, Wirges said.
Mobiliti, launched in metro Detroit in 2017, ran subscription pilots in areas such as Austin and Detroit in 2018 and into 2019. After the pilots ended, executives worked to solve hurdles dealerships faced scaling up, including pricey insurance and the lack of both floorplan options and vehicle-protection products.
"We are very confident we've addressed all the major issues," said Charlie Daniel, former COO of Mobiliti and CEO of DealerPointe.
Last year, Mobiliti partnered with DealerPointe, an agency of underwriter AUL Corp., to offer protection products specifically for subscription and ride-hailing programs. Dealerships can buy the products — tire-and-wheel insurance, for example — on a monthly basis.
Earlier this month, DealerPointe, of Raleigh, N.C., acquired Mobiliti's intellectual property — its subscription platform — for an undisclosed amount, Daniel said. He expects 20 dealerships will be using the Mobiliti platform to run their own subscription programs by the end of March.

Just as subscription programs have had mixed results, so have platform providers. DriveItAway says it is profitable. Puente called Flexdrive "not far from profitable," but said it has opted to invest in international opportunities. Growth has been faster in Europe than in the U.S., he said.

FreshCar, the rebranded name for Detroit subscription company Carma Car, also said it is seeing international growth opportunities.

Fair, a used-vehicle subscription service based in Santa Monica, Calif., grew rapidly last year, buying Ford Credit's Canvas subscription platform reaching 65,000 subscribers — half being ride-hail drivers. Last fall, Fair laid off 40 percent of its staff amid financial woes and co-founder Scott Painter resigned as CEO. A Fair spokeswoman declined to comment.

DriveItAway's Possumato said 90 percent of business is ride-hail or subprime; many customers are profitable. "The general consumer, the 800 credit score, really isn't the low-hanging fruit right now really for the dealer," he said.

Too much focus on subprime or ride-hailing rings alarm bells for Tarun Kajeepeta, who sold his Condor Detroit subscription service to Mobiliti in mid-2018. Kajeepeta said some large-scale providers are putting vehicles in the wrong hands, sometimes ride-hail drivers who may not qualify for loans. Vehicles can be driven tens of thousands of miles a year, rapidly accelerating depreciation. Not appropriately accounting for that depreciation leads to a "house of cards," he said.

That said, Kajeepeta still believes in the model. He suggests using 2- to 3-year-old vehicles, eliminating multiple vehicle swaps, instituting a mileage cap and running background checks on drivers.

While Warren Henry Automotive found niches for its FlexWheels program, it opted to wind it down in favor of a new platform, Modos. It includes subscription, with technology to help determine what vehicles to use and when to pull them from fleets. It also supports rental car, loaner fleet management and car-share on-demand businesses.

Modos launched in January in South Florida with a service loaner product and aims to expand this year to Los Angeles, said Erik Day, CFO of Warren Henry, a North Miami, Fla., dealership group. Day envisions a coast-to-coast experience where dealerships could share fleets to assist customers as they travel.

"We have a lot of dealers who are hand-raisers," Day said.

Both Clutch and Flexdrive see subscription growing. Flexdrive works with about 30 U.S. dealership groups and plans to have 200,000 or more subscribers in the next five years, up from more than 25,000 now, Puente said. Growth will accelerate as dealership programs mature and come from a few undisclosed automakers Flexdrive is working with, he said.

Clutch, which works with nearly 200 dealerships and has contracts with 18 automakers, wants to see subscription offerings in most dealerships in the future.

"I want these products to sit alongside a purchase price and a lease price, and I want there to be a subscription price that's available," Zappa said. "... There's a pretty good chance that people may not lease cars at the same rate in the future. Instead, that may be an area where subscription and mobility starts to kind of eat away a little bit, over time."

Some subscription technology platforms are including more data analytics to help clients make timely inventory decisions.