Car subscriptions are taking off in SA

FlexClub, a new company that focuses on car subscriptions in South Africa and Mexico, is now delivering almost 100 cars a week across South Africa to its partners.

“The uncertainty of the [Covid-19] pandemic has created an openness to new ways of consuming cars,” said FlexClub CEO and founder Tinashe Ruzane during a webinar on the future of automotive retailing hosted by Deloitte.

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“They don’t have any need to negotiate any additional insurance or figure out a maintenance plan. They can stop it at any time. They can also swap the vehicle at any time or choose to buy the car at any time,” he said.

Less complexity

Ruzane said car subscriptions reduce the complexity of the retail transaction.

He said a car customer (ordinarily) needs to get to a dealer, engage with a financier, decide on an appropriate maintenance or service plan, who is going to insure the vehicle and what their recourse is if the vehicle is stolen.

“It is quite a lot to navigate as a buyer. This is why we believe that car subscriptions present an opportunity to create an all-inclusive experience that allows us to make this experience as simple as buying a pair of shoes online.

“If I want to change the car, I do that with a click of a button. There is no need to negotiate what trade-in assistance I will receive, what is my negative equity with the bank as far as the settlement versus value is concerned. None of that is a consideration that a consumer will need to navigate.”

Ruzane said FlexClub has been fortunate to partner with vehicle retail groups such as Barloworld and Motus in South Africa to bring its car subscription product to the market.

Car ownership aspiration disproved

He added that FlexClub has disproved the concept that car ownership is what people aspire to and highlighted the benefits of car subscriptions in the uncertain environment created by the Covid-19 pandemic.

Ruzane added that there has been a misconception for a long time that vehicle financing with a balloon payment equated to ownership when in reality it is not ownership because there is still an obligation on the consumer to purchase the car from the financier after the 72-month period.

“They don’t become the owner of that car until that point, in which case they are effectively in a rental construct with a lot more risks and obligations than otherwise would be the case had they been in a traditional rental product,” he said.

Best of both worlds

InspectaCar CEO Petunia Sibanyoni said some consumers, particularly millennials, may prefer not to own a vehicle and also not to take the risk that comes with it but still prefer to have access to mobility.

Sibanyoni said that as a financier, InspectaCar will have to allow car subscriptions to enable them to also capture this market.

“It’s an interesting stat [statistic] that they are delivering about 100 cars a week, which does mean there is a market for it.

“Whether it is going to grow and supersede the traditional ownership model, that is something as South Africans we will still have to see,” she said.

Innovation

Standard Bank group head vehicle and asset finance Simphiwe Nghona said it would be remiss of Standard Bank – and from a traditional bank perspective – to dismiss or not recognise the variances and different offerings that keep coming to the fore that are backed by digital players as well as innovation.

Nghona referred to the rising participation of telecoms in financial services.

He said Standard Bank’s vision from a vehicle and asset finance perspective is to be a holistic mobility service provider, and that consumer needs and demands are key in this.

“The key thing is to recognise not only the emergence of the innovative or tech players in this space but also to have an appetite to partner with them because at the end of the road, as the financial services provider, we have got a role to play in how we meet up with customer demands,” he said.

Work-from-home impact

National Automobile Dealers’ Association (Nada) chair Mark Dommisse said the vehicle retail market did not know what to expect when South Africa came out of the hard lockdown, how dealers would sell cars and how the market would interact with consumers.

Dommisse said so much was unknown, which kicked off a digital revolution across the world, with much more home-based purchasing and people having flexible times and not putting that much mileage on their cars.

He said dealers thought this would be a big negative for their businesses and they would struggle, but interest rates were dramatically reduced in South Africa and there were also huge interventions by the government.

He said the lower interest rates managed to subsidise and keep the new car market going while dealer salespeople communicated with customers by any means possible, such as Facebook and WhatsApp.

“Facebook is the lead factor and 80% of new car leads for our brands came out of Facebook,” he said.

“That element changed completely. Dealers did not suddenly start setting up formalised digital platforms for customers. It was really the customers sitting on their phone at home at whatever time and conversing with the dealer, and that could have been through WhatsApp to direct sales. A lot of the time, half of our staff were not in the dealerships.”

New ways of doing things

Dommisse said this sped up the process and interactions, but was customer-driven – and if salespeople did not respond quickly, customers went to another dealer because they wanted an instant response.

“This has created loads of impatience in the purchasing cycle and I’d hope that dealers responded to that,” he said.

Deloitte China auto sector leader Dr Marco Hecker said pre-Covid-19, the entire automotive industry was talking about connectivity, autonomy, shared mobility and electric mobility but the pandemic accelerated the most important of these: connectivity and electric mobility.

He said dealers need to be aware and confident that dealerships are also an asset in the new mobility environment because of the need for a point of delivery.

Hecker said the pressure on dealers increased because of the pandemic.

“We see there is an immediate focus on EV [electric vehicle] sales and in many of the markets it’s about how many cars you are able to push into the market.

“There will be a shift in the long term – and here we are talking from 2025 or even 2030 – from private to fleets with different requirements also in terms of the roles that dealers are playing,” he said.

Hecker added that there will also be an increased focus on aftersales in dealerships because they want to make money; on the other hand EVs have fewer parts and require less maintenance, which means there is a potential gap in revenues that dealers need to plan for.

This story first appeared on Moneyweb and has been republished with permission.