SUBSCRIPTION management software developer, Loopit, has issued a white paper for OEMs and dealers on the concept of using subscription funding to maximise the ratio of low emission vehicles they will sell under the NVES regulations.

Meeting or exceeding mandated ratios under the rules will avoid significant financial penalties and even generate credits that can be sold to other car makers for profit.

The white paper argues that by using subscription funding offers, OEMs can get an earlier start on low emissions credits than would be possible through conventional purchasing models therefore getting an early start on meeting or exceeding lower CO2 targets.This is because, Loopit says, it is finding it is far easier for dealers to “sell” an EV via a subscription than it is to sell an EV through conventional ownership deals.

This is because subscribing to an EV strips away the many uncertainties that buyers have as the transition to low-emissions vehicles takes place because subscribing allows buyers to dip their toe-in-the-water and get out of the car in the short term if those uncertainties turn into potentially deal-breaking objections. 

It gives buyers a taste for what it is like to own an EV,” Loopit says.

Loopit sells systems set up to manage the emerging specialist field of OEMs and dealers operating vehicle assets under subscriptions. The software also manages loan and service cars and car rental fleets. 

Joint-founder of Loopit, Michael Higgins, told GoAutoNews Premium that the NVES compliance is measured at the point of import.

“That is significant because it allows the manufacturer more control over its fleet for the purpose of compliance,” he said.

“Subscriptions therefore give the OEMs more flexibility by getting people into cars as subscribers. This reduces the pressure on the OEM to immediately sell the vehicles they have imported. 

“In a traditional sales model, dealers have relatively little incentive or misaligned incentives to prioritise low-emission vehicles, especially when higher emission vehicles are often an easier sell at this point in time. “So this allows manufacturers to ease into their NVES compliance. They have imported the low emission EVs but they are maybe not sure if they can sell all of them in a short period of time to be compliant with the new laws. 

“Putting subscribers into those vehicles while they’re still spinning up their sales machine and watching the changing consumer demand element, they can run subscription offerings that gear towards EVs.

“We have found that subscriptions are heavily geared towards EVs because, from a consumer point of view, it allows the consumer a little bit of a toe-in-the-water approach to EVs. 

“Perhaps they are concerned about depreciation or servicing or battery life or any of those things. Subscription allows consumers to get into those vehicles without those concerns, and so the manufacturer can run a subscription offering that allows them to hit their NVES targets. 

“And the NVES, if you’re doing very well, actually allows you to trade credits so they can potentially be a profit centre. So it allows them to run this while they’re still spinning up their sales and dealer network work to sell the EVs and the low emission vehicles like hybrids. 

“We’re unlocking the resistance and we’re also providing a soft landing for OEMs as this new law comes into place by avoiding the potential for panic that they have to sell all these EVs to be compliant or maybe face penalties.”

Mr Higgins said that there has been a shift in the EV market.

“We are now moving from the innovation phase. We are moving from the ‘early adopters’ to the ‘early majority’ with EVs and hybrids. And the ‘early majority’ often have a higher standard and are a little bit more resistant to change, and so subscription allows them to do that toe-in-the-water approach to address their concerns.”

Mr Higgins said that both dealers and OEMs can run subscribed assets. Dealers can run their own subscriber fleets or deliver and maintain OEM-owned vehicles on behalf of the car companies.

“We’ve seen different offerings where the manufacturer might choose to own the assets themselves through their finance company and then the dealers just ultimately manage that asset. “That often allows the dealer network a clean supply of high quality late model used stock when they decide to retire these vehicles after maybe six months, maybe a year, maybe two and then it naturally feeds the dealership machine as well. It supplies used stock, feeds the used car department and the used car department will naturally then feed finance and insurance accordingly.”

He said that the fear of buyers being locked into a vehicle that is depreciating rapidly is rendered redundant under the subscription model.

“The subscription fee is taking into account the loss of value in the asset. As they devalue, the owner of the asset is getting paid. 

“Also the subscription allows the manufacturer or the dealer, whoever owns the asset, to choose when they want to retire their vehicle. It is not a long-term lease or contract. 

“They might be having a shortage in a used car department so they retire some of their nine month-old vehicles and put them into used cars, and put some new cars out to subscription. 

“Or certain EVs might be in demand on the used car market, so they then choose to sell them. This gives the asset owner a much more flexible choice on what they do with their asset and when.” 

Mr Higgins said that buyers know their downside from day one with a subscription whereas, if they are leasing the car, they don’t know what their total downside is going to be until they come to change it over. 

Asked if subscribing to a vehicle was significantly more expensive than leasing or a loan  Mr Higgins said: “It’s a mixed bag. Early on we saw the likes of Cadillac, BMW and so on had ultra-luxury, ultra-niche offerings in the US that were very expensive. They were 200 to 300 per cent of the lease cost. 

“These offerings at the time allowed people to frequently change a car and exchange it for a convertible for a weekend away, for example. It was very, very nice, but there was a huge premium attached to it.

Michael Higgin

“We have learned two things since: the consumer is not going to pay 300 per cent nor should they. But at the same time, we found that once the consumers got the baby seat in the back, they just kept the cars. 

“So they don’t feel the need to make those frequent changes. And because they’re not making these changes, the cost of running these programs drops phenomenally, because you’re not having to cover the cost of all the manpower involved in doing that.

“By keeping them on the road, it allows the offering to be significantly more competitive with a traditional lease.”

Mr Higgins said the average subscription today is about 306 days

Another development is the increasing number of people who move from a subscription to a purchase.

“We have dealer groups which are seeing a 30 to 40 per cent conversion from subscription to sale; usually a brand new version of the same car but not always,” Mr Higgins said.