Is permanent renting the future of the car?

Big plans ahead for permanent subscription models, but will people buy in?

Volkswagen’s Klaus Zellmer: ‘We have a trend in society where people, younger people especially, are less willing to commit to purchasing a car.’

Volkswagen’s Klaus Zellmer: ‘We have a trend in society where people, younger people especially, are less willing to commit to purchasing a car.’

 

Klaus Zellmer wants to change the way you buy a car. In fact, he doesn’t want you to buy a car at all, if you don’t fancy it. He’d be quite happy for you to pay for a car as you need it.

“People will say, ‘well, today I have to travel for maybe three hours or five hours and I would rather just have an autonomous car do that for me, and I’ll happily pay the same price as a train ticket to do that’. Except it’s better than a train for you, because it picks you up at your front door and drops you right to where you’re going,” Zellmer tells The Irish Times.

He is not, as you may be imagining, some future-gazing prognosticator with nothing better to do but come up with sci-fi predictions for tomorrow.

In fact, the German auto executive is the new board member for sales, marketing and after-sales for Volkswagen. It’s one of the most senior positions in the vast Volkswagen Group, and given the sheer weight of VW-badged sales, and their influence not just on other brands within the group, but rival brands too, what Zellmer thinks and does will have significant ripple effects on what the rest of the car world does too.

“We have a trend in society where people, younger people especially, are less willing to commit to purchasing a car. Why would they purchase a car, they ask, and deal with all the consequences of that – such as resale value, insurance, tax and so on – when they can let us take care of all that?” says Zellmer. “‘You give me a car and I pay for it when I need it’ – that is the societal trend.”

Zellmer says that such as pay-as-you-go model, or indeed a full-service subscription model, won’t be the totality of the car market in the future, but it will be a significant part. “It’s going to run alongside,” he says. “Today we have a cash market, we have a finance market, we have a leasing market, and maybe this new model is more like an extension of the leasing market. We have now a model where people will pay to have their car for three years, and then hand it back, and maybe pay for a new car for another three years, but we have to develop new models, because these same people might now be saying that they only want to commit for six months at a time.”

There is another issue at play here, aside from the evolution of customer tastes, and that is the vast investments needed to develop the sort of autonomous, robotic driving that will be a major pillar of this purported instant-access future. Recouping the investment on early so-called “Level 4” autonomous cars could involve adding five-figure sums to the price of a car, and many people simply won’t pay that as a purchase, but Zellmer’s thinking is that they might well be willing to pay for it as a service. Get enough people paying enough for that autonomous service and you start to see some return on investment.

The question is, is this something that people really want? Or is this something car makers are trying to foist upon us, driven by the need to wear the robes of high-tech in order to please capital investors who would rather put their money into Google or Amazon?

By proposing that instead of just paying up-front for options, which you buy outright and then sell on at the end of your term of ownership, you instead take out a subscription which gives you access to a feature or option which is already in the car, manufacturers are effectively asking you to pay for an unlock code.

Such systems are already being readied for use by car manufacturers, but equally they’ve already run into difficulty. BMW tried asking customers to pay an annual fee to be able to use Apple CarPlay, but a consumer backlash forced a climb-down. That climb-down is looking more and more temporary.

There are potential benefits to this from a consumer perspective. You’ll only pay for equipment you actually want, rather than being – as currently – steered into buying packs that might include items of no interest. There’s also less potential downside when it comes to resale time; many options that people specify are of interest to them alone, and it can be hard to reclaim their value at trade-in time.

There seems to be a sticking point, though, which is that people are reluctant in the extreme to buy a car this way. While we’ve become used to buying cars on a Personal Contract Purchase (PCP) plan, effectively a personal lease, we are still hung up on the idea of actually owning our cars – even if that sense of ownership is illusory. Many car brands have offered the idea of a subscription form of ownership – you pay a fixed monthly fee, and it covers all your repayments, your tax, maintenance, insurance, and even tyres. Everything but the cost of filling a tank with petrol or a battery with charge.

Such offerings have struggled, though. Volvo was supposed to have introduced its Care By Volvo subscription scheme in Ireland three years ago with the launch of the XC40 crossover, but it foundered on the rocks of Irish insurance costs. Porsche, Audi, BMW and Cadillac have all trailed such subscription programmes, but they haven’t caught on and many have been quietly shelved.

The implications for the second-hand market are huge, too. Will we no longer be able to find bargain models stuffed with lots of options? Or will used cars become like refurbished phones and computers, blank electronic slates to be refilled with fresh subscriptions?

All-electric ID. BUZZ will be the Volkswagen to also drive autonomously.
All-electric ID. BUZZ will be the Volkswagen to also drive autonomously.

The bigger question is whether consumers can be tempted down such a path, and the answer seems to be deeply unclear. Analyst firm Oliver Wyman conducted a survey among US and German car buyers and found that only 26 per cent in Germany, and a tiny 14 per cent in the US, were keen on the idea of car subscriptions.

“Subscriptions may never be right for certain types of driver. One reason why the shift away from ownership has not been able to take hold among consumers is that people often have an emotional bond to their car, which is cemented by ownership. While many young people are no longer very interested in cars, that could change once they have families of their own and leave the city for the suburbs,” notes August Joas and Joachim Deinlein, authors of the Wyman report.

“If subscription-service offerings are not done right, they could easily fail. Therefore, turning them into a successful business will be a learning process. As a first step, automobile manufacturers should set up their own subscription services and begin working out the kinks in them. If they do not, then someone else will instead, and it will be the other service that talks to the customers.”

At Volkswagen, Zellmer is adamant that there is mileage yet in all ownership models. “From my point of view, there will always be people who like brands, people who want to have something personal, maybe even to personalise their car. These are the people who will lease, finance, or buy a car, and we will always have those,” he says. “But of course for many, a car is a commodity that gets you from A to B. More and more we are seeing that kind of buyer out there. That lessens the importance of the brand, and it all becomes much more price sensitive. The last time you caught a bus, did you notice which company made the bus?

“The new aspect will be autonomous driving, because once we have that, then you are doing different things inside the car. You can talk with your family, you can play games, or watch a movie, you can work, you can even sleep. So we have to create this environment that differentiates our car of the future from other cars, and that gives you the sense of something that you might even call a mobile home. And I think that’s where the new competitive environment will be.”

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