Mike Todd, chief executive of Volkswagen Financial Services UK, shares his thoughts on changing patterns of car ownership and ponders on what can we expect from the near future.
If we glance back over the past few many years, we will see just how much the automotive industry has modified. Within the last 20 years alone, it has seen major technological advancements, from enhanced driver assistance features to more fuel-efficient vehicles.
Nevertheless, as consumers proceed to hunt the newest and best driving experience, the best way they purchase vehicles can also be changing. So, with more options available than ever before, including the emergence of automotive subscription services, the long run of car ownership is evolving.
As a society, we’re rooted within the ‘pay-as-you-go’ era. That is evidenced by the widespread popularity of subscription services, comparable to Netflix and Spotify – to the purpose where the ‘subscription economy’ is reported to grow to $1 trillion by 2028 – greater than double its estimated value in 2021.
Today’s consumers want access to a mess of product selections encompassing the newest technology, which they might not all the time have the option to afford to buy outright. We saw this primary with smartphones, where the demand for the newest technology was stifled by the typical consumer’s ability to afford the whole price of the product. This brought forward more financing options to extend affordability amongst consumers, allowing people to pay in monthly instalments, after which replace their handset with a more recent model or buy out the remaining fee at the tip of the contract.
Trends for flexible finance access
There’s now evidence that the automotive industry is actively reacting to the rise of ‘pay-as-you-go’ consumer preferences because of this of lifestyle flexibility, budgeting demands and alternative solutions, impacting how recent cars are acquired. This sits alongside the present number of finance options for consumers, including personal contract purchase (PCP), personal contract hire (PCH) or hire purchase (HP).
Such automotive industry moves align with the findings of consumer research conducted by PwC that checked out the sentiment around automotive subscription models. Automobile subscription services allow drivers to pay reduced upfront fees and go for shorter-term commitments with the convenience of easy cancellation or model switching. The research reveals that half of UK consumers are showing a growing preference for automotive subscription services, over traditional automotive buying and financing alternatives. And it also highlights that 44% of consumers planning to acquire a brand new automotive in the subsequent five years are considering subscription services as a viable alternative alongside traditional purchasing or leasing options.
As well as, in accordance with the PwC research, age is a big think about the growing demand for automotive subscription services, with much of the anticipated demand coming from customers aged between 18 and 44. The explanations for selecting automotive subscription services typically fall into three categories: people like the flexibleness of accessing recent or higher cars, without long-term commitments; people prefer an all-inclusive package with a hard and fast monthly fee; and other people benefit from the value and convenience.
In tandem, research by McKinsey shows that customers are shifting towards more flexible ownership forms like vehicle leasing – with twice as many consumers saying they’d select leasing over their current ownership situation for his or her next automotive. This shift comes on the expense of each traditional outright automotive purchase and credit financing deals.
The attraction of ‘try-before-you-buy.’
With flexible mobility a key driver of consumer automotive buying sentiment, the recognition of services that allow users to easily ‘try before they buy’ can also be gaining traction. For instance, having the keys to a brand new vehicle for a seven-day period to access a rounded driving experience with none further financial commitment, allows consumers to come to a decision if the vehicle is the proper one for them. They will then explore how best to fund it from the various options available depending on their circumstances.
Definitely flexible mobility solutions comparable to this also provides learnings on evolving consumer behaviour, which inform future iterations of Consumer Duty compliant products that enable vehicle ownership and usership.
So, what’s next?
As the long run direction of travel for accessing vehicles takes shape, the industry, including VWFS, continues to judge and learn from driver attitudes and behavioural preferences. There’s a growing trend of consumers valuing experiences over possessions, and this includes how they’re viewing cars. Research shows that millennials cherish experiences, with 78% saying they’d fairly spend money on an experience than a fabric thing. This highlights the importance of cars utilising technology to reinforce the driving experience, alongside the offer of flexible financing options. And the shift towards the experience has also delivered to light interest in ‘pay-as-you-go’ automotive leasing, especially inside cities, along with emphasising the potential of ‘try-before-you-buy’ services as a part of the vehicle consideration process.
Micro-mobility solutions are sometimes quicker and more convenient for brief trips in congested city areas, and the convenience of not owning a vehicle can often outweigh the advantages of ownership for some. That is pushing many consumers – especially the younger generations – towards shared services. On the entire, nevertheless, the importance of getting access to a non-public vehicle has not vanished for many consumers – fewer than 15% of current automotive owners say they’d consider replacing their vehicle entirely with other types of transport in the subsequent decade.
Concurrently, the potential of autonomous vehicles may even see firms offering on-demand ‘transportation as a service,’ further reducing the necessity for individual automotive ownership. Such vehicles could potentially provide users with essentially the most optimal route, reduce traffic congestion, and improve safety – all points that may make shared services more attractive.
And while such advancements could seem quite far off, driver technology can currently offer real-time updates on traffic, weather, and vehicle health, making vehicle management more seamless. As we get more comfortable with enhanced data collection, the industry will have the option to supply more personalised services, including automotive maintenance, to enhance the general automotive ownership experience for consumers.
Within the mainstream, while many individuals are still buying on PCP or leasing, it is vital that the automotive industry stays focused on consumer duty and continues to evolve and adapt services and products, in order that they are flexible enough to make sure they serve the person needs of consumers and their specific preferences.
Responding to the shift away from a generation of ‘petrol heads’ that purchase cars to change them for their very own personal driving preference, towards one which favours ease, flexibility, and convenience over the rest, might be key to an emerging driving world unlike that of previous generations.
This Article First Appeared At www.am-online.com
