Porsche sees path for its subscription service

With profitability scarce, many automakers are steering away from their vehicle subscription experiments. Yet, Porsche is doubling down on its 3-year-old program. And it's doing so in the maw of a health crisis that has many Americans wary of sharing vehicles.

Porsche is now making its vehicle subscription service more accessible with a new entry-level program.

The sports car maker also will expand the service to Los Angeles, the epicenter of luxury-vehicle sales.

The Porsche Drive subscription program is "strategically really important" for the brand as it looks to develop the next generation of customers, Porsche Cars North America CEO Klaus Zellmer said.

"Younger generations are not so convinced to buy into a Porsche through ownership," Zellmer said. Instead, they want access to the brand without being locked into a three-year lease. "They want to get in and out just like they feel," Zellmer said.

Since 2017, the Porsche subscription program has cycled through 325 members, mostly in Atlanta. About a third of members enroll for at least four months and swap vehicles on average two times a month. The subscription program, which starts at $2,100 a month (before taxes and a $595 activation fee) and offers unlimited vehicle swaps, has expanded to San Diego, Las Vegas, Phoenix and Toronto.

The COVID-19 pandemic, however, has tapped the brakes on the momentum. Porsche's subscription program has 70 percent of the members it had before the crisis began, which has hampered profitability, Zellmer said. In July, the Las Vegas subscription program was temporarily suspended.

"Around half of our dealers nationwide closed their sales operations during the initial lockdowns starting in March, so those who were part of Porsche Drive could not operate the concierge service," Zellmer said.

Porsche North Scottsdale saw robust interest after it began offering the subscription program in October, said General Manager Dave Zoloto. "With the transiency of the Phoenix market, partial residents here in the wintertime, I thought it was a pretty stand-up program," he said.

Then, COVID-19 hit. The dealership now has four customers in subscription vehicles, about half the volume from last winter.

"It's very difficult to really say where this program goes today based on the comfort level of consumers for sharing cars," Zoloto said.

The pandemic and its economic fallout are likely to pressure the long-term sustainability of the unproven subscription model.

Several new automaker and dealer programs were delayed by COVID-19, mainly because of the uncertainty and service disruption at local dealerships, said Vince Zappa, president of Clutch Technologies, a Cox Automotive unit that develops software for vehicle-subscription service providers.

"At the beginning of the year, we had deals and implementations in process that have certainly been affected," Zappa said.

Consumer demand for subscriptions dropped in March but returned to pre-COVID-19 levels beginning in May, he said.

Even before the coronavirus, automakers struggled to attract enough people who want to pay for the convenience of swapping vehicles. Others have found customers but struggled to turn a profit.

Mercedes-Benz USA will end its two-year vehicle subscription pilot this month, citing lackluster demand. The service drew a few hundred customers, and Mercedes executives had expected it to turn a profit in the first 12 to 18 months.

Book by Cadillac, a subscription service from General Motors, was put on hiatus in 2018 after few customers bit at the service's $1,800-per-month price. GM now is revisiting the program and testing a rebooted version in a dealer pilot.

Ford Motor Co. walked away from its vehicle subscription business last fall, following lackluster demand.

To make its subscription service more accessible, Porsche will offer access to a single model for one or three months.

The new option starts at $1,500 per month for the Macan crossover and tops out at $2,600 for the 911 Carrera.

Adding a single-vehicle option acknowledges a preference among some subscription members to stay in one vehicle instead of constantly swapping models.

"We are trying to be as customer-centric as possible," Zellmer said. "We've done our homework, studied the data, and we think that we've designed an offering that gives the customer exactly what they are looking for."

The CEO is optimistic about reaching a wider audience. "We expect demand to be much higher because the single subscription program will be, in terms of pricing, placed between a typical lease rate and the multivehicle subscription," Zellmer said.

With pandemic-fueled economic uncertainty expected to linger, Clutch's Zappa expects more automakers and dealerships to gravitate toward affordable subscription pricing.

"Single-vehicle subscription makes it easier for consumers to acquire the transportation they need during times of uncertainty," he said. "Borrowing costs will likely increase for consumers affected by the downturn, which will put pressure on traditional financing and leasing, making subscription a viable alternative for many, especially at lower-middle income levels."