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Preparing for a subscription economy

November 16, 2018
Rapid changes are taking place in the way people buy things. The U.S. is moving toward a subscription-based economy, driving companies to focus less on individual sales, and more on gaining recurring customers. This trend is seen across industries, in companies such as Netflix, Blue Apron, Spotify, Amazon, and now BMW, Mercedes, and Audi. 
But how big is this market, and who is signing up for these subscriptions? More important, how does this subscription-based economy impact the retail automotive industry and the lenders who support it?
E-commerce subscribers are most likely to be 25 to 44 years old, to have incomes from $50,000 to $100,000, and to live in urban environments in the Northeast U.S. Women account for 60 percent of subscriptions. But men are more likely to have three or more active subscriptions, suggesting that men value automated purchasing to save time. These numbers track well with the potential prime auto loan customers lenders crave, and they are reflective of the coveted millennial consumer base.
Nearly 60 percent of millennials would prefer to rent a home than buy one. They also are the leading proponents of the share-economy (e.g., Uber), thanks to their financial position. Aside from record amounts of student debt, millennials earn an average 20 percent less than Baby Boomers did at the same stage of life, according to the Federal Reserve. This disparity is the driving force for why millennials did not run out and buy vehicles and homes as soon as they graduated high school and college.
Lender Leverage
Lenders are undoubtedly familiar with subscription models. Credit cards could be considered the ultimate subscription. However, transitioning this thinking to auto loans is a new model.
So how can a dealer plug in? Just as lenders include protection products for their credit cards, the same should be included for auto subscription services. The same trends that could affect a person’s ability to make an auto loan payment could change her subscription payment. 
Offering consumer protection products, such as a vehicle service contract or vehicle return protection, on an auto subscription service can further insulate a dealership from risk while also creating an additional revenue stream.
 
 

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