One of the interesting trends that I picked up while walking the floor of CDX 2018 this year, was the rapid progress of ‘Mobility as a Service’ (MaaS) start-ups like Drover. Drover is less than three years old but has completed two successful funding rounds garnering a total of £7.5m of investment capital during its short life.
It started in January 2016 as the preferred partner for the provision of vehicles for Uber drivers in Liverpool, Manchester and London. Having cut its teeth dealing with the numerous operational pressures associated with Uber driving i.e. high mileage (35,000 miles per year average), high vehicle turnover, large volumes of accidents, maintenance issues and even processing of parking tickets; it launched its Business to Business/retail partnership offer aimed at car rental firms, OEMs and car dealerships in February 2018.
It is currently building a network of more than 100 retail partners and has already signed up Avis, Budget and Europcar on the car rental side, as well as BMW direct and two dealership groups with Nissan, Mazda, Peugeot and Honda franchises. Half a dozen more dealerships are close to signature at time of writing.
So, what is the attraction for dealers? Drover says that it is finding favour with medium to large-sized dealers selling around 100 plus new cars per month, although they are also talking to smaller dealerships with strong focus on serving the customer in a more flexible way.
Matthew Caudle, Head of Fleet Partnerships & Operations at Drover explains:
Our offer is a response to changing customer behaviour amongst younger people. Nearly all Drover subscribers are between the age of 25 and 40 years old and the average age of all our customers right now is 37. Millennials tend to make the vast majority of their purchases online and they access nearly all the services they use on an affordable, flexible monthly subscription basis – from Netflix, to Amazon Prime and Microsoft Outlook 365. We just bring the subscription model to car buying and, in the process, take out the hassle of haggling at initial sale/lease by offering an online, all-in total monthly cost including maintenance, tax, insurance and even a reduction on fuel through specific Drover fuel partners
So how are the deals cut with the dealers? Essentially Drover offers dealers the opportunity to earn an income on pre-reg, ageing, demo, used and existing rental stock. Dealers simply need to decide what types (age, model etc) vehicles they are able to make available to Drover and at which price monthly, building in maintenance liability into that figure. They retain ownership of all cars they offer for usage via Drover.
Drover is then able to give them insight, based on the thousands of cars it’s currently renting out, into what estimated take-up is likely to be on those models at agreed subscription prices. Dealers then provide their stock feed to Drover for uploading and online promotion at full bundled prices once Drover has added its 12.5% sales commission and its insurance estimate.
It’s a great way for dealers to reach the younger buyer market which many dealers struggle with. It’s also a good way of monetising excess pre-reg, demo and ageing stock – taking the pain out of write-downs which have been a drag on many dealers’ profitability since early last year.
It also offers a regular subscription-based income stream. Dealers no longer need to rely solely on new car sales or servicing income which can be lumpy – some quarters are good but others less so. This lumpiness can of course stimulate excess pre-reg.
Regular monthly subscription from under-utilised stock may supplement or replace some monthly subscription-based F&I-based income. Most vulnerable right now is income from Guaranteed Asset Protection (GAP) insurance sales. GAP sales fell by between 16-23% following the Financial Conduct Authority’s intervention in this market in September 2015.
What, if anything, is likely to prevent dealers talking to Drover when they come calling? Is Drover using data intelligence about your customers (that it signs up to the service) to stimulate rapid switching and - as they bring more dealers on board - offering more choice of vehicles which they might get from a competitor dealership? There is no evidence or reports of this yet.
Is there likely to be a conflict of interest if they have direct relationships operating with OEMs which happen to be the same as yours? In theory, yes, so you will need to assure yourself that proper Chinese walls exist so that your proprietary stock data is not flowing to the OEM.
However, by and large, the new subscription model looks like a great model to explore for dealers and rental businesses alike, particularly those facing tightening margins on the sale of new cars and seeing pre-reg, demo and ageing stock as a growing threat to profitability. It’s also likely to be attractive if you have a service centre in place and scope to grow it.
It’s also worth noting that in the States Fair.com and other MaaS players have built considerable presence in US dealerships already; while several major OEMs have rolled out their own subscription-based offerings in the US including BMW, Volvo, Fiat Chrysler and Chevrolet; while Volvo is already trialling its ‘Care by Volvo’ subscription-based service in the UK. It’s definitely a trend that’s worth a closer look as is the public-private integrated Mobility as a Service plans being built at a city, region, national and EU-wide level.