Corporate Innovation/Analysis/ Carmakers struggle with new style of car ownership Younger drivers want car shares and subscriptions but carmakers have struggled to create their own services. Partnerships may be a way in. By Maija Palmer 20 October 2020 Photo by Jan de Keijzer on Unsplash Photo by Jan de Keijzer on Unsplash \Corporate Innovation Purrsonalised health: The startups and VCs betting on pet genetics By Adam Green 15 September 2022 Corporate Innovation/Analysis/ Carmakers struggle with new style of car ownership Younger drivers want car shares and subscriptions but carmakers have struggled to create their own services. Partnerships may be a way in. By Maija Palmer 20 October 2020 Buying a new car has become an “old people” thing, it seems. “The average age of a new car buyer in the UK is 55,” says Felix Leuschner, founder and chief executive at Drover, the online car subscriptions company. This is a problem for car manufacturers, who are seeing their customer base slowly dying out. “The average age of a new car buyer in the UK is 55.” It is one of the reasons they have become keen to work with car subscription companies like Drover. “It doesn’t really cannibalise their customer base at all. We appeal to a much younger user — 30s is our sweet spot,” explains Leuschner. “The average age of our users is 38.” Drover offers users access to a range of cars for a flat monthly fee of £568 — which includes breakdown cover and servicing. Cars can be booked for 1 month to 24 months, which is slightly longer than an average car rental but shorter than a leasing agreement. For younger consumers, used to buying everything from music to beer on a subscription model, this flexible option can be preferable to spending thousands upfront for a deprecating piece of machinery. Carmakers struggle to go direct Car manufacturers have tried to do their own car subscription and car-sharing services. Most of the industry would love to emulate Tesla, with its direct relationship with customers. However, most of the manufacturers’ experiments have failed. General Motors shut down its Maven car-sharing service earlier this year. Ford sold its Canvas car-leasing business last year while Mercedes-Benz cancelled a pilot for a US car-sharing programme after seeing extremely low demand. BMW merged its Drive Now with Daimler’s Car2Go to create ShareNow in an effort to improve profitability. Even so, ShareNow retreated from the UK and North America at the end of 2019 as it was proving too difficult to make the service viable in these regions. Car2Go tripled losses in Spain in 2019 It doesn’t seem to be any easier in the markets they remain in. The Spanish Car2Go business saw revenues rise 52% to €7.65m in 2019, but net losses tripled to €6.16m. Share Now has had to pour in €9.5m to keep the company afloat as costs such as repairs (€2.8m) and insurance premiums (€1.14m) mounted. Exactly why car makers have proved terrible at running alternative models is unclear. Possibly because running a car subscription service is as much about internet commerce skills — understanding sales funnels and conversion rates — as it is about understanding cars. In addition, car manufacturers have had to move carefully to avoid upsetting legacy car dealership relationships. And they have had their hands full in converting to electric models, as well as exploring the possibilities of autonomous vehicles — so the car-sharing may have to take a back seat. Partnership model Whatever the reason, it is leaving the field open for independents like Drover, which is working with all the car makers in the market. With some, the relationship has been particularly close — Drover partnered with BMW and Renault, for example, when it launched its services in France earlier this year. A good relationship with car manufacturers is essential. They give Drover discounts on bulk buys of vehicles, enough so that the subscriptions company can make a decent margin on its contracts. Drover says it saw business double in 2019 and is on track for a similar performance in 2020. Drover says it saw business double in 2019 and is on track for a similar performance in 2020, despite seeing some slowdown because of the Covid-19 pandemic. The UK-based startup raised £20.5 Series B round in July, and a further £2.25m top-up last week from Shell Ventures. The investor base includes a number of corporate venture funds in it, including BP Ventures, but you won’t find a single automaker in the cap table — that is a deliberate choice. “We did have an approach from an OEM vendor in the early days but we thought it wouldn’t be a good idea. We wanted to be neutral, and not to be seen as falling into one camp or the other,” says Leuschner. This could change as the company grows more established, he adds. Now that it has established relationships across the industry and demonstrated its independence, a cheque from a car company would no longer be quite so taboo. The company is certainly hiring from the auto sector. It recently brought on board Chris Moysen, the former operations director at Hertz, as chief operating officer, and Alex Rose, who was formerly at BMW, as chief marketing officer. An opportunity or a threat? Many of the carmakers that work with Drover see it as a marketing opportunity — a chance to let people try before they buy and hopefully convert some of those subscribers into car buyers. But working through an intermediary, like this, means they aren’t getting the hoped for direct relationship with the customer. Down the road, there could also be a conflict of interest between car manufacturers who want to convert people into buyers and Drover, which wants to keep customers subscribing forever. This is possibly why some carmakers are still giving their own subscription services a go. Volvo and its parent company Geely launched the Lynk & Co subscription service in Europe at the end of September. Customers pay around €500 a month for access to the hybrid SUVs offered by the service. There are plans to open a showroom in Amsterdam this month followed by another Gothenburg. The company says it is aiming for 10,000 customers next year and then 100,000 as it rolls across the continent. A trademark application, made in January, has also caused some to speculate that Fiat could be planning to launch a car subscription service. For the moment, however, these feel like exceptions among a more general retreat by the carmakers. Maija Palmer is Sifted’s innovation editor. She covers deeptech and corporate innovation, and tweets from @maijapalmer Related Articles “De-risking” risks being an empty catch-phrase By Julian Ritter Click here to read more Electric bike startup Cowboy hits the streets in three new countries By Amy Lewin Click here to read more “Better to partner than start from scratch” — Luca de Meo on SEAT’s micromobility ambitions By Tim Smith Click here to read more Most Read 1 \Healthtech Is Daniel Ek’s new body scanner worth the hype? 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