Subscription Payment Model Could Become Fourth Pillar of Auto Financing

Tried buying a car lately? Oh, that’s right — we’re fresh out of cars since the pandemic.

An exaggeration, but not terribly far off the mark. Various media reports place used car prices 40% higher than before COVID-19, with the average new car price hitting a record of over $47,000 in December 2021. Call it “car trouble.”

Into this sad situation for a car-loving nation is stepping FINN, the auto subscription company that started in Germany and coming to the U.S. in 2022 with its digital-first take on auto usage.

According to FINN CEO and co-founder Max-Josef Meier, it all began when he became aware “that cars is the largest retail market in the world, and still has the lowest eCommerce [penetration] rate of all markets. It’s at 1%, so there’s a huge opportunity out there for more online offerings. Then I came across car subscriptions.”

It was kismet.

With 10,000 subscribers in Germany, FINN announced its imminent U.S. arrival in December. The company is launching in the Philadelphia area and plans to expand in the Northeast this year, with other parts of the country, like Florida and Texas, in the works for next year. It offers 6- and 12-month terms with different mileage options, a selection of cars and SUVS (including electric options) and subscription prices starting at $679 per month.

FINN charges no down payment for “the vast majority” of subscribers and insurance is included, as is “everything but fuel, and even free delivery to your doorstep.”

All this because the joy — or chore — of car buying, depending on markets, has changed.

“We are building a demand platform, and in the car industry for 50 years, if not 100 years, the constraint has been demand and not supply,” Meier said. “Now, for the second year in a row, supply is the issue and not demand.”

Given that he foresees FINN growing at least threefold and reaching 30,000 subscriptions this year with its U.S. debut, we could be witnessing a major route change for auto sales.

See also: Auto Retailers Tap Tech to Cut Risk of Finding, Buying Used Cars in Unfamiliar Places

Cars for the Commitment-Phobic

It seems like yesterday when a car was the second-largest expenditure after a house, but times change and so is the car market, as the profile of buyers shifts along with cost and supply.

“In regard to our customers, typically we have very broad group of customers,” Meier said. “It really starts in the early twenties and goes up to the late seventies. We also have a core target group, and we typically call them ‘former hipsters’ living in big cities.”

Meier said these urbanites may be using other forms of mobility like scooters, but as people stream out of cities during the pandemic, suburban life wants for SUVs and options.

“Our core demographic are families in their thirties and forties,” he said.

These are the same folks who would’ve been looking at leasing, but Meier feels that the subscription model, while in some ways similar to leasing, offers more value.

“It’s definitely true that people like more flexibility and less long commitments. Maybe 10 years ago, a commitment of three or four years for a lease would be absolutely fine for most people,” he told Webster. “But now for many people, three or four years is quite a commitment. We found that a 12-month commitment is ideal for many customers.”

It’s what he calls the “second wave” of car subscriptions, the first being luxury offerings that could clock in at up to $5,000 per month.

“The second wave, I think, are these platforms that are much more successful because they’re much more aligned with the mass market needs, offer a little bit less flexibility,” Meier said. “For example, it’s 12 months in our case, but for a price that still really feels like a good deal to customers.”

See also: EV Subscription Firm Autonomy Debuts in California, Plans for 15 Markets

Good to Have OEM Friends

As to total addressable market, Meier sees the U.S. as a land of vehicular-subscription opportunity, ably assisted by FINN’s supply network and partnerships with automakers.

To begin with, “the good thing about the car market is that it’s incredibly huge,” he said. “It’s like 500 million cars in Europe, and our goal is to only have a few hundred thousand car subscriptions live in a few years. We really need just to capture a very tiny piece.

“Secondly, we really are focusing on like being an online car subscription platform. This is our thing. It’s a five-minute online booking process, you pay one monthly rate, everything is included.”

When those subscriber cars are returned with dinged corner panels and cigarette burns in the upholstery, is that the moment of truth where subscriptions are no better than leases?

“Yes, you have to give it back and yes, if there is a damage, you have to pay for it,” he said.

However, “Almost 50% of our users do not need to pay anything when they return — on average, I think it’s between €200 to €300,” Meier added. “What we charge customers is really only our repair costs. There is an appraisal, and we share it with our customers,” but subscribers rarely pay full pop.

“We really want to be fair,” he said. “That’s kind of in our DNA.”

See also: Startup Debuts Tesla Subscription Service in California with 100 Model 3s