Industry Perspective | Promoting Subscription and Flexible Leasing to Younger Customers

Dealer showroom, 1920s

Customer: "This car is exactly what I need, but I don't have enough cash to buy it right now."

Salesman: "No problem. With the establishment of the General Motors Acceptance Corporation, you can now take out a loan to buy the car."

Dealer showroom, 1980s

Customer: "This car is indeed what I want, but the monthly loan payment exceeds my budget."

Salesman: "No problem. Let me introduce you to our new consumer leasing program—you only pay for the portion of the vehicle you use."

Dealer showroom, 2020s

Customer: "I want a new car, but the down payment for a loan or that new special leasing program is too high, and given the current economic situation, I don't want to make any long-term financial commitments."

Salesman: "No problem. Now we can offer you a new flexible subscription service with monthly billing, fully digital. Pay as you go—you can choose to buy or return the vehicle at any time, and the sale price will deduct the amount you've already paid."

Perhaps the future of automotive retail won't evolve exactly this way. But if Deloitte's survey of 18- to 34-year-olds is close to accurate, then single-vehicle flexible leasing (i.e., vehicle subscription) seems likely to bring a significant influx of new customers to new car sales.

Note: I'm not referring to the "swap vehicles anytime, same price, multiple vehicles" subscription services that manufacturers launched a few years ago. The theoretical selling point of that model was convenience, like "drive an SUV in winter, a convertible in summer," etc. It was aimed primarily at high-end customers who, in theory, were willing to pay nearly double for that privilege. Even so, no one made money because you had to maintain double the inventory; as with the ill-fated car-sharing model, it quickly turned out that everyone wanted to use the same vehicles at the same time.

Instead, I believe what the Deloitte research reveals is that 18- to 34-year-olds, based on their circumstances and familiarity, are interested in vehicle contracts that don't require long-term financial commitments, don't require a "down payment," and allow for return or purchase. As with any other flexible lease or subscription model, you pay more per month, but for the right millennial or Gen Z "buyer," it's genuine value for money.

Moreover, if Deloitte found such strong interest, why hasn't any manufacturer or dealer tried it, even just as a gesture to attract showroom traffic? Even merely publicly offering such a program seems like it would give OEMs and dealers a clear competitive advantage in increasing foot traffic.

It's not as if 18- to 34-year-olds are currently flocking to buy new cars in the traditional way; in fact, quite the opposite—a crisis seems to be brewing.

According to an IHS Markit report, in March 2024, new car purchases among 18- to 34-year-olds hit an all-time low, while the proportion of new cars bought by those over 65 reached an all-time high. Extrapolating these two trend lines is genuinely concerning, so you'd think OEMs and retailers would be focusing on this demographic now for future sales growth.

Technology isn't the obstacle; services that support any subscription or flexible leasing program seamlessly and cost-effectively are readily available.

So, what's holding things back?

Here's my thinking, because I'm old enough and have worked in retail long enough to remember when no prospect walked into a showroom asking about traditional leasing.

Traditional leasing filled a clear market need by making vehicles more affordable and accessible through lower long-term commitments, but in fact, it only truly took off when the following conditions were met:

• Dealers were trained to explain and sell leases (remember Eustace Wolfington and HalfACar?)
• OEMs not only supported that training but also supported the financing of traditional lease programs through their finance subsidiaries, offering incentives and competitive rates.
• Tier 1, 2, and 3 advertising programs promoted the availability and benefits of this new leasing alternative.

It took a few years, but with these three factors working together—except during periods of unprecedented supply shortages—leasing has become a fundamental way for a large portion of car buyers to afford new vehicles and avoid the issues of long-term ownership.

I think it's time to fully launch subscription/flexible leasing programs to re-energize the 18- to 34-year-old market for new car purchases. I'm crazy enough to believe that subscription or flexible leasing becoming the third major channel for personal and small commercial vehicle acquisition—after vehicle financing contracts or traditional fixed leases—is not a matter of "if" but "when." And those OEMs and dealers that embrace this trend first and do it right will, as Wayne Gretzky said, "skate to where the puck is going," thereby winning significant market share.

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