As car subscription services continue to grow in popularity, providers must consider the best way to acquire new car inventory to meet the needs of their customers. While direct purchases from the manufacturer may be ideal for some providers, limitations imposed by dealer franchise laws and other factors can make it difficult or impossible to acquire new vehicles through that channel. As a result, many car subscription providers turn to alternative procurement channels such as dealerships and leasing companies.
New Vehicle Procurement Channels
Direct from the car manufacturer
New vehicle procurement directly from the manufacturer is typically done by negotiating a bulk order discount or a fleet purchase program.
This often yields the lowest purchase cost, however dealer franchise laws may make it difficult for car subscription providers to purchase directly from a manufacturer. These laws are designed to protect franchised dealerships from unfair competition from manufacturers, and they often include provisions that limit a manufacturer's ability to sell directly to consumers or other third parties.
In some states, for example, dealer franchise laws require manufacturers to sell new cars only through licensed dealerships. This means that car subscription providers may not be able to purchase vehicles directly from a manufacturer, as they are not licensed dealerships. In other cases, manufacturers may be prohibited from selling directly to consumers or third parties, which can also limit a subscription provider's ability to acquire new vehicles.
However, it's worth noting that these laws can vary by state and by manufacturer. Some manufacturers may have more flexibility in how they sell their vehicles, while others may be subject to more restrictive franchise laws.
Through a dealership
For a car subscription provider, buying new car inventory through a dealership may be the only viable alternative in some cases. While direct purchases from the manufacturer may be ideal for some providers, the limitations imposed by dealer franchise laws, as well as other factors such as limited supply, can make it difficult or impossible to acquire new vehicles through that channel.
Purchasing new car inventory through a dealership does have some advantages, such as the ability to purchase smaller fleets. This can be beneficial for car subscription providers who are just starting out or who have a smaller customer base. By purchasing smaller fleets, providers can minimize their upfront costs and reduce the risk of overstocking their inventory.
In addition, purchasing new car inventory through a dealership can offer more flexibility in terms of customizing vehicles to meet the specific needs of the subscription service. Dealerships may have more options for customizing vehicles, such as adding specific packages or features that are popular among subscribers.
However, there are also some disadvantages to purchasing new car inventory through a dealership. Dealerships may charge higher prices than manufacturers or other procurement channels, which can reduce the profitability of the subscription service. In addition, dealerships may have limited supply of certain models or colors, which can make it difficult for providers to acquire the exact vehicles they need to meet customer demand.
Overall, purchasing new car inventory through a dealership can be a viable alternative for car subscription providers, but it's important to carefully evaluate the costs and benefits of this procurement channel and to develop a procurement strategy that is tailored to the needs of the business.
Acquiring new car inventory through a leasing arrangement can also be a viable alternative for car subscription providers. Leasing new vehicles from a leasing company can provide a number of advantages over purchasing new cars outright.
One major benefit of leasing new cars is that it typically requires less upfront capital than purchasing them outright. This can help reduce the financial risk for a car subscription provider. Leasing arrangements can also provide more flexibility in terms of fleet size, as providers can adjust the number of vehicles they lease as their customer base grows or changes.
Another advantage of leasing is that since the leasing company retains ownership of the vehicles, the car subscription provider is not responsible for the depreciation of the vehicles. This can help reduce the financial risk associated with owning new cars.
Leasing arrangements can also provide access to newer vehicles, which can be a competitive advantage for a car subscription provider looking to offer the latest and most popular models. Additionally, since leased vehicles are typically new and under warranty, maintenance costs may be lower than for older vehicles.
However, there are also some disadvantages to acquiring new car inventory through a leasing arrangement. For example, lease payments can be higher than loan payments, and there may be restrictions on mileage and customization options.
Benefits of New Vehicle Inventory
New vehicles typically come with a manufacturer warranty, which can provide peace of mind to both the car subscription provider and its customers. The warranty covers certain repairs and replacements for a specified period of time, which can help reduce the cost of maintenance and repairs for the provider.
Bulk order discount
Car subscription providers may be able to negotiate a bulk order discount when purchasing new vehicles. This can help reduce the purchase price of each vehicle, which can lead to cost savings for the provider.
Some car manufacturers offer guaranteed buyback programs for new vehicles, which can help car subscription providers reduce the risk of depreciation. Under these programs, the manufacturer guarantees to buy the vehicle back at a certain price after a specified period of time, typically two to three years. This can help the provider manage its inventory and plan for future purchases.
New vehicles tend to have higher demand than used vehicles, particularly if they are popular models or have desirable features. This can help the car subscription provider attract and retain customers, as customers are more likely to be interested in newer, more desirable vehicles.