Mike Todd, chief executive of Volkswagen Financial Services UK, shares his thoughts on changing patterns of vehicle ownership and ponders on what can we expect from the near future.
If we look back over the past few decades, we can see just how much the automotive industry has changed. In the last 20 years alone, it has seen major technological advancements, from enhanced driver assistance features to more fuel-efficient vehicles.
However, as consumers continue to seek the latest and best driving experience, the way they purchase vehicles is also changing. So, with more options available than ever before, including the emergence of car subscription services, the future of vehicle ownership is evolving.
As a society, we are rooted in the ‘pay-as-you-go’ era. This is evidenced by the widespread popularity of subscription services, such as Netflix and Spotify – to the point where the ‘subscription economy’ is reported to grow to $1 trillion by 2028 – more than double its estimated worth in 2021.
Today’s consumers want access to a multitude of product choices encompassing the latest technology, which they may not always be able to afford to purchase outright. We saw this first with smartphones, where the demand for the latest technology was stifled by the average consumer’s ability to afford the total price of the product. This brought forward more financing options to increase affordability among consumers, allowing people to pay in monthly instalments, and then replace their handset with a newer model or buy out the remaining fee at the end of the contract.
Trends for flexible finance access
There is now evidence that the automotive industry is actively reacting to the rise of ‘pay-as-you-go’ consumer preferences as a result of lifestyle flexibility, budgeting demands and alternative solutions, impacting how new cars are acquired. This sits alongside the current variety of finance options for consumers, including personal contract purchase (PCP), personal contract hire (PCH) or hire purchase (HP).
Such automotive industry moves align with the findings of consumer research conducted by PwC that looked at the sentiment around car subscription models. Car subscription services allow drivers to pay reduced upfront fees and opt for shorter-term commitments with the convenience of easy cancellation or model switching. The research reveals that half of UK consumers are showing a growing preference for car subscription services, over traditional car buying and financing alternatives. And it also highlights that 44% of consumers planning to obtain a new car in the next five years are considering subscription services as a viable alternative alongside traditional purchasing or leasing options.
In addition, according to the PwC research, age is a significant factor in the growing demand for car subscription services, with much of the anticipated demand coming from customers aged between 18 and 44. The reasons for choosing car subscription services typically fall into three categories: people like the flexibility of accessing new or better cars, without long-term commitments; people prefer an all-inclusive package with a fixed monthly fee; and people enjoy the value and convenience.
In tandem, research by McKinsey shows that consumers are shifting towards more flexible ownership forms like vehicle leasing – with twice as many consumers saying they would choose leasing over their current ownership situation for their next car. This shift comes at the expense of both traditional outright car purchase and credit financing deals.
The attraction of ‘try-before-you-buy.’
With flexible mobility a key driver of consumer car buying sentiment, the popularity of services that allow users to simply ‘try before they buy’ is also gaining traction. For example, having the keys to a new vehicle for a seven-day period to access a rounded driving experience without any further financial commitment, allows consumers to decide if the vehicle is the right one for them. They can then explore how best to fund it from the many options available depending on their circumstances.
Certainly flexible mobility solutions such as this also provides learnings on evolving consumer behaviour, which inform future iterations of Consumer Duty compliant products that enable vehicle ownership and usership.
So, what is next?
As the future direction of travel for accessing vehicles takes shape, the industry, including VWFS, continues to evaluate and learn from driver attitudes and behavioural preferences. There is a growing trend of consumers valuing experiences over possessions, and this includes how they are viewing cars. Research shows that millennials cherish experiences, with 78% saying they would rather spend money on an experience than a material thing. This highlights the importance of cars utilising technology to enhance the driving experience, alongside the offer of flexible financing options. And the shift towards the experience has also brought to light interest in ‘pay-as-you-go’ car leasing, especially within cities, together with emphasising the potential of ‘try-before-you-buy’ services as part of the vehicle consideration process.
Micro-mobility solutions are often quicker and more convenient for short trips in congested city areas, and the convenience of not owning a vehicle can often outweigh the benefits of ownership for some. This is pushing many consumers – especially the younger generations – towards shared services. On the whole, however, the importance of having access to a private vehicle has not vanished for most consumers – fewer than 15% of current car owners say they would consider replacing their vehicle entirely with other forms of transport in the next decade.
Simultaneously, the potential of autonomous vehicles may see companies offering on-demand ‘transportation as a service,’ further reducing the need for individual car ownership. Such vehicles could potentially provide users with the most optimal route, reduce traffic congestion, and improve safety – all aspects that would make shared services more attractive.
And while such advancements may seem quite far off, driver technology can currently offer real-time updates on traffic, weather, and vehicle health, making vehicle management more seamless. As we get more comfortable with enhanced data collection, the industry will be able to offer more personalised services, including car maintenance, to improve the overall car ownership experience for consumers.
In the mainstream, while many people are still buying on PCP or leasing, it is important that the automotive industry remains focused on consumer duty and continues to evolve and adapt products and services, so they are flexible enough to ensure they serve the individual needs of customers and their specific preferences.
Responding to the shift away from a generation of ‘petrol heads’ that purchase cars to modify them for their own personal driving preference, towards one that favours ease, flexibility, and convenience over anything else, will be key to an emerging driving world unlike that of previous generations.