Subscriptions Could Be The Cure For Ailing Automakers (CARZ)

From Jon Markman: Volvo is simplifying its powertrains. Now it wants to simplify the way it sells vehicles.

The iconic Swedish carmaker with the Chinese parent has a new plan to get millennials into its cars: subscriptions. Sort of like the way telecom carriers sell iPhones, except with cars.

It makes sense. And it’s sweeping through the marketing world.

The root of Care by Volvo is reducing friction. The company will take care of the pesky stuff like insurance, maintenance and repairs. Then customers can design their own packages around their individual needs.

Want a concierge service? Check. Refueling and cleaning? Check. Want to impress future in-laws next weekend with the new XC-90? You can do that, too.

There is even a service pack that includes a new upgrade every two years, naturally.

For its troubles, Volvo would get a monthly subscription fee that rises with the level and complexity of services selected. It’s innovative. It’s also entirely necessary. The corporate world is wrestling with how to market to a generation that would much rather spend income on restaurants and travel than durables.

Millennials were born into the sharing economy, and they like it.

They don’t buy music or DVDs. There is a smartphone app for that. Spotify, the leading music-streaming service, now has 140 million active users. Fifty million pay a monthly fee.

They don’t buy cars. There is an app for that, too. Uber, the leading ride-hailing company, operates in 84 countries and served 2 billion rides in 2016.

Brian Chesky, founder of Airbnb, a home-sharing company, put it best: “Access is becoming the new ownership … our bling isn’t our house or our car, it is the theatre of Instagram and the experiences we are having in the world.”

Care by Volvo is an attempt to bring the auto industry into the age of access. Image Credit:

Care by Volvo is an attempt to bring the auto industry into the age of access.

It comes as the industry deals with declining sales and the prospect of innovation, like self-driving technologies, may kill the ownership business model altogether. Car companies are getting ready.

BMW is trialing a ride-sharing service called ReachNow. General Motors bought an automated driving technology company, invested $500 million in Lyft, Uber’s largest rival, and is starting its own car-sharing service. Companies from Fiat Chrysler (FCAU) to Ford (F), Volkswagen and Mercedes have similar deals in the works.

It’s a crazy, mixed-up time, fostered by changing societal values and emergent technology.

For investors, it does not have to be perilous. Opportunities abound. Companies are building vibrant new business models around access.

For example, Amazon Web Services (AWS) started when the online retailer decided to sell access to its spare compute and data storage capacity, on a pay-as-you-go basis. That access allowed Netflix (NFLX) to transform itself from a sleepy mail-order DVD rental company into a behemoth. Today, AWS is headed toward $20 billion in sales, and Netflix is the first global entertainment network.

AWS and Netflix are not the only success stories. Numerous companies have made the transition to successful subscription business models. Others are in the process. You just have to know where to look.

Apple is the world’s largest company by market capitalization. It logs the bulk of its sales through lucrative annual contracts with wireless carriers. In 2015, it began pushing its own upgrade program to people shopping online and at its stores. It turns out that selling subscriptions is easier than convincing them to buy an expensive new phone each year.

Volvo is hoping to catch a bit of the magic.

Ultimately, the jury is still out on Care by Volvo. Getting a new car is expensive, even when the longer-term costs are hidden in monthly lease payments. However, the program is important because it shows where marketing is headed, and why.

The First Trust Exchange-Traded Fund II (CARZ) was unchanged in premarket trading Friday. Year-to-date, CARZ has gained 18.04%, versus a 13.03% rise in the benchmark S&P 500 index during the same period.

CARZ currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #26 of 40 ETFs in the Consumer-Focused ETFs category.

This article is brought to you courtesy of Jon Markman\’ s Pivotal Point.