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On the Point

Bound to Fail

Da Man returns with a message to vehicle manufacturers jumping into the subscription waters: It ain’t gonna happen.

May 7, 2018

They tell us vehicle subscription programs are the next wave of the future — that they are going to round up all those millennials and lead them into dealerships. Volvo, Cadillac, Lincoln, and Hyundai think so, and virtually every other manufacturer is getting set to follow their lead.

But lurking in the background are the usual suspects plotting new ways to disrupt the traditional car sales model.

"I called Saturn correctly from the start. I predicted Scion’s demise, the implosion of the Ford Auto Collection, and a host of other manufacturer-inspired catastrophes. It wasn’t because I was smart; it was because other people were so stupid."

So let me go on record today — while the hysteria is still fresh — and say subscription services will crash and burn within the next couple of years. Things will start out nicely, with manufacturers throwing crazy amounts of money at these programs. But then, just as they start to gain momentum, the entire mess will come crashing down under its own weight.

The No. 1 reason these subscription programs will fail is math, because things just don’t add up. The second reason they’ll fail is manufacturer involvement.

There’s an old saying that goes, “When you’re dead, you don’t know you’re dead; it’s only difficult for others. Same when you’re stupid.” And that goes double for manufacturers interfering in retail.

Take General Motors, which took more than a dozen years and a $15 billion loss before it shut down Saturn. The same happened to Toyota with Scion. And who can forget the Ford Auto Collection, which amazingly transformed the word “cluster” into an adjective. And don’t get me started on Shop Click Drive. In fact, it would take 10 pages to list all the manufacturer screw-ups over the last 20 years.

What’s funny about these subscriptions is they sound a lot like a lease. In fact, some of the contracts even describe them that way. But it’s not, the automakers will say. It’s a hybrid that allows people to exchange one car for another, and the monthly payment covers insurance, roadside assistance, and maintenance. It’s a millennial’s dream come true.

One of my favorite dealers, Cincinnati’s Jeff Wyler, has gone all in on subscription programs. If you know Jeff, you know he runs a first-class organization. And he has some of the best people in the business on staff. If anybody can make subscription programs work, it’s him. And I hate betting against him. But let me repeat myself: These programs ain’t gonna happen. I’m not hoping they’ll fail; I just know they will. First of all, the expenses are not justifiable. Second, these manufacturers have totally misread what consumers will and won’t do.

For instance, when a person wants to switch a car for another one, is she going to get the color and trim she wants? I can already hear the dealer’s response, “OK, you’re ready to switch to an SUV. Here’s a base Escalade with 20,000 miles on the odometer and a little funky odor. Oh, you don’t like the color? Sorry, it’s what we have.”

Those of us who deal with the public on a regular basis know this is going to turn into a disaster for dealers, because no amount of goodwill is going to keep customers happy.

And just think of the logistical nightmare this is going to be. I mean, how do you make sure dealers have enough vehicles in the fleet to handle changing consumer demands? By the way, who owns these cars? More importantly, who absorbs the losses when these cars have to be retired out of the pool? Keep in mind that leasing has never really worked well for the lessor.

One thing that’s predictable is the manufacturers are going to throw a lot of stupid money at these programs. There will be cash incentives, unrealistically high residuals set on the individual units in the pool, and there will be some ridiculously high dealer cash for hitting the numbers. But there will be a reckoning.

Yeah, all the smoke and mirrors, sleight of hand, and voodoo logic are going to come crashing down hard. Hey, no matter how hard we chase millennials, they’re still going to be flagging down $5 Uber rides on their smartphones instead of paying $500 to $1,500 a month for an all-inclusive subscription.

But what will ensure the demise of these programs is manufacturers have constructed them to cut out dealer profit centers. Who would’ve guessed, right? But dealers, like they always do, will go along with the program. Hey, we’ve saved their butts every time they rolled out — or inflicted on us — the next wave of the future.

I called Saturn correctly from the start. I predicted Scion’s demise, the implosion of the Ford Auto Collection, and a host of other manufacturer-inspired catastrophes. It wasn’t because I was smart; it was because other people were so stupid.

Jim Ziegler is the president of Ziegler SuperSystems Inc. Contact him at jim.ziegler@bobit.com.

Comments

  1. 1. ChadInCanada [ May 10, 2018 @ 10:31AM ]

    I agree. I don't know about in the USA, but leases aren't popular here in Canada. People want to OWN their vehicle for the most part. The subscription model will appeal to so few people, that it is doomed to failure.

  2. 2. Bubba B [ May 10, 2018 @ 10:39AM ]

    Jim - good to hear from you. Welcome back!

  3. 3. Brian [ May 10, 2018 @ 11:05AM ]

    I have to agree. Six of my 40 years in and around the auto business was spent as a GM of a Buick-Pontiac-GMC store, when GM, the largest car maker in the word at the time, was floundering around trying to find its' market and spent money on useless advertising and gimmicks such as "Harley Earl's Hat". Factory employees need to start out actually working at a dealership so they have an understanding of the business that they are in.

  4. 4. scott [ May 10, 2018 @ 05:25PM ]

    Welcome back,where have you been hiding?

  5. 5. Jim Ziegler [ May 29, 2018 @ 11:54AM ]

    NOT Hiding guys (gals) just taking it easy and NOT writing as much as I once did. I appreciate the kind words... I am still here and controversial as ever. #AlphaDawg

  6. 6. Rick H [ May 29, 2018 @ 03:30PM ]

    Great article Jim. I'm glad to see you've recovered from that nasty virus. My deepest apologies. Even now, the Buick & GMC advertising has no substance. I'd like to see ads that feature benefits and attributes of the product instead of what we see today. More and more programs cost us money. We've reduced our 17 model year inventory by half this month and we haven't liked the haircut on the CTP units. As I tell or staff, we are in the new car business to sell used cars - for gross and service pay the bills.

  7. 7. Jim Simon [ June 13, 2018 @ 08:30AM ]

    Jim, as a group we are a little different than the mfg subscription model. To answer a few questions, we own the cars and collect a monthly premium and write the units down and have a group insurance policy. Is it perfect? No, but with most franchises represented in our cadre of vehicles we’ve seen customers enjoying the flexibility to move from Vans to Wranglers to Sierra pickups as well as to our MB units including a few AMG units and even brands we don’t sell new. To be fair, it’s basically a $1100 Mo. demo rental program for those that want choices in what they drive. We don’t have the luxury of writing bad residuals like the manufacturers’ will, but we also face a lot less franchise protection issues doing it our way. Jury is out, we’re not 100% convinced either, but listening to other dealers opine about how their new car departments are just breakeven centers for their stores while they watch shared vehicle ownership and subscription models get started up by manufacturers and hope they don’t grab hold is something we don’t play in. Make it happen or not, we decided to see if it could work. The resources to do it; win or lose. We’ve seen dealers make far worse investments, and others who’ve done remarkable things just because they tried. Entrepreneurship is not about the risk of failure but being able to look past obstacles for an opportunity.
    40 years ago, savvy car people saw a whole new product called F&I and some dealers to this day still don’t think it’s going to work out.

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Author Bio

Jim Ziegler

President & CEO of Ziegler SuperSystems

Jim 'Da Man' Ziegler joined the magazine in 2011 to deliver his On-the-Point message about the car business to dealer principals and store managers. He'll offer strategy advice on everything from sales and F&I to marketing in the digital age. Catch him every month at www.fi-magazine.com.

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