The ownership misapprehension

by Tim Kiek
13 Dec 2018
The ownership misapprehension

Last issue’s cover story was devoted to the rise of what has been coined the ‘subscription economy’. When applied to the motor industry, this neologism represents a shift away from the conventional vehicle ownership model towards a rental one and can be loosely divided into two segments: mobility-as-a-service and vehicle rental. The former is an aspirational vision of how the transportation ecosystem might be arranged in years to come with a monthly payment essentially securing your mobility needs whether they be passenger car, pushbike, PTW, taxi, train, bus etc. The second is less radical in its ambition and, in essence, represents a more latitudinal version of the omnipresent PCP and its leasing counterpart PCH. Both these forms of finance involve punitive early annulment clauses and they are also only taken out against one vehicle; the subscription alternative differs in that it unfetters the motorist from both contractual bonds and vehicle constraints. So on Monday to Friday this might involve driving a supermini into work, and then at the weekend switching to something cut from a more family-friendly cloth. The monthly payment also includes all maintenance, insurance and tax requirements – and is facilitated through a subscription ‘middle man’ company.

If the promise of unlimited vehicle access, stripped of burdensome administrative and upkeep obligations for a set price each month, sounds too good to be true then rest assured you aren’t being unduly cynical. As Nigel McMinn, chief operating officer at Lookers, sagely notes: “A point that a lot of people miss is that to give the flexibility that subscription promises, there is a premium to be paid; no one offering these schemes can afford to do so otherwise – it is about risk and reward.”

It isn’t just cost that is a barrier to any eventual shift away from the vehicle ownership model; there is a strong case to be made that the entire subscription lobby is predicating its belief in subscription on a fundamental misunderstanding of human behaviour. Conventional wisdom dictates that because of the increasing prevalence of the monthly payment model – first trail-blazed in the mobile phone arena and subsequently transferred to the motor industry in the shape of dealer finance and leasing – today’s consumers have eschewed ownership. Indeed, there is a concerted bid by those with invested interests in monthly payment models to portray ‘ownership’ as something of an anachronism in our fast-paced, consumerist society. But here’s the rub: if you ask people who have a phone contract whether they own their phone they will almost certainly say yes. And if you ask people on a PCP contract whether they own their car they will almost certainly say yes too. The fact that they don’t own the phone or car in the traditional sense of ownership is absolutely irrelevant; the commodities are still to all intents and purposes ‘theirs’. In short, there is way too much emphasis placed on transactional mechanisms and not enough on psychological motivations.

Consumers are far more pragmatic than dogmatic when it comes to their habits; they will try and get what they believe represents the best deal for them whether that be in the form of an outright purchase, a PCP contract or, indeed, a subscription. Consumers are also products of society and so are highly individualistic – a trait which doesn’t lend itself to sharing but does lend itself to the accumulation of material goods. It is when these two traits are combined that the real reason for the popularity of phone rental and the PCP reveals itself: both are believed to represent the most convenient means of product acquisition.

As such we can divine that the popularity of the PCP – like most human behaviours – is driven by macro, societal trends – not by some biological shift in the way humans think whereby they are no longer interested in ownership. It is for this reason that subscription services in the motor industry will only ever gain widespread traction if they can demonstrably eclipse the perceived value of the PCP. If this doesn’t happen then the subscription revolution, in our industry at least, will remain suspended in its conspiratorial phrase in perpetuity.

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