Efficient and timely vehicle disposal will become one of the critical success metrics for any car subscription service provider.
In this context, "disposal" refers to the process of removing vehicles from a car subscription service provider's fleet when they are no longer needed or have reached the end of their useful life.
This involves selling, trading, or otherwise disposing of these vehicles in a manner that minimises costs and maximises returns while ensuring the efficient management of the fleet by considering the vehicle's residual value.
The flexible nature of car subscription services allows providers to explore innovative and potentially more lucrative strategies for disposing of their vehicles compared to traditional fleet disposal methods.
Traditional Vehicle Disposal Channels
Guaranteed Buyback Schemes
A guaranteed buyback option is an agreement between a car subscription service provider and an original equipment manufacturer (OEM) or dealership that ensures the provider can sell back the vehicles at a predetermined price after a specific period or when they reach certain usage milestones.
This option can be particularly advantageous when purchasing cars at scale, as it provides an efficient disposal method that reduces the risks associated with vehicle depreciation and simplifies the process of managing the fleet.
By securing a guaranteed buyback option, car subscription service providers can better plan and optimize their fleet's lifecycle, knowing that they have a reliable outlet for disposing of their vehicles.
This arrangement allows providers to focus on offering high-quality subscription services to their customers while minimizing the financial uncertainties associated with fluctuating resale values.
Furthermore, guaranteed buyback agreements create stronger partnerships with OEMs and dealerships, which can lead to more favorable pricing and terms for future vehicle purchases, contributing to the overall growth and success of the car subscription service provider.
Selling to Dealerships
Subscription providers can sell their vehicles directly to dealerships, which can offer a quick and easy way to dispose of cars in bulk. Dealerships may be interested in purchasing cars that are in good condition and can be resold to consumers.
However, as more dealerships choose to participate in the car subscription services industry, this can also create a lucrative internal source of valuable used car inventory for a dealership.
Subscription providers can also sell their vehicles through auctions, which can provide access to a large pool of potential buyers. Auctions can be either physical or online, and can be run by a variety of organizations, including auction houses and online marketplaces.
Auctions have been a popular disposal option for traditional fleet operators as it allowed them to realise the residual value of end-of-life vehicles fast and at scale, albeit at wholesale values.
However this vehicle disposal channel will likely become less relevant under a car subscription model.
Traditional fleet operators often lease their vehicles to businesses or individuals for a fixed period, after which the vehicles are returned and the operator must find a way to dispose of them. This can result in a large number of vehicles becoming a liability for the operator, particularly if market conditions or demand for specific vehicle types changes.
The flexible nature of car subscription services allows providers to better manage their fleets and adjust to changing market conditions, reducing the need for traditional disposal channels such as auctions. By re-leasing vehicles to new subscribers or selling them through other disposal channels, car subscription providers can continue to generate revenue from their vehicles, rather than incurring costs associated with disposal.
Subscription providers can sell vehicles directly to consumers, either through their own sales channels or through third-party marketplaces. This can be a time-consuming process, but can potentially generate higher returns than selling through dealerships or auctions.
Emerging Vehicle Disposal Channels
Selling to other subscription providers
If a car subscription provider is looking to expand their fleet, they may be interested in purchasing used vehicles from other providers. This can provide a quick and easy way to acquire new vehicles, without the need to go through traditional channels.
Often subscription providers operate within a specific inventory niche, this may resemble premium vehicles or budget vehicles, new or slightly used, electric or combustion.
A vehicle that may have reached the end of its marketable lifecycle with one subscription provider may still be of value to another provider operating in an adjacent vehicle category.
Internal direct sales
One advantage of a car subscription model is that it can provide a ready-made pool of buyers for used vehicles among existing and returning subscription customers. This is because many customers may see subscription as a path to purchase, and may be interested in purchasing a used vehicle from the provider once their subscription ends.
By offering direct sales of used vehicles to subscribers, car subscription providers can potentially generate additional revenue while also providing value to their customers. Subscribers may appreciate the convenience and peace of mind that comes with purchasing a used vehicle from a provider that they are already familiar with and trust.
In addition, direct sales of used vehicles to subscribers can also help car subscription providers manage their fleets more effectively. By selling used vehicles to subscribers, providers can reduce the number of vehicles that need to be disposed of through other channels such as auctions or resale to dealerships.
Car subscription providers must also be aware of any relevant credit laws in their region when it comes to selling used vehicles to subscribers.
For example, providers may not be able to deduct the subscription payments made by a subscriber from the retail value of the vehicle when selling it to the subscriber, as this may be seen as a form of rent-to-own financing.
To avoid these issues, car subscription providers must ensure that they are in compliance with all relevant credit laws when selling used vehicles to subscribers. This may include seeking legal advice, understanding the specific regulations in their region, and being transparent with subscribers about the pricing and financing options available. By doing so, providers can ensure that they are operating within the law while also providing value to their customers.