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Car subscriptions are taking off in SA

Covid-19 has created an openness to new ways of consuming cars – FlexClub.
‘As simple as buying a pair of shoes online’ is one way the ‘all-inclusive’ experience has been described. Image: Supplied

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.

Ruzane said car subscriptions are essentially a flexible monthly fee that a customer pays for the use of a car.

“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.

“I order the car on the website, it’s delivered to my home but if I don’t want the car anymore, it disappears,” he said.

“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.”

Read: How to buy your bank a car

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.

Dommisse said consumers also got scared, with some taking conservative purchasing decisions, resulting in a buy-down to cheaper vehicles.

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.

Hecker said Deloitte believes there will be a mix between the online platform and the physical dealership.

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.

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“You will own nothing and be happy.” Klaus Schwab
https://youtu.be/60MzTlrOCXQ

“Property Ownership is dwindling, the Pillars of Marriage have broken and Value has been replaced by Perception. This the faux reality which corrupt politicians and poor monetary system has created.” PurgeCoin

Do not be fooled by the temporary life, especially if you have children and would like then to have something which you have spent the last 40 years of your life working for. Time is the most valuable currency how you store and preserve it value is the 1 Bitcoin question.

“TIME is the most valuable currency”. Brilliantly said, PurgeCoin

If you have children and you would like to leave something behind which you have worked for 40 years? think twice

That was the idea 50 or 60 years ago, it is now very difficult to keep something or value.

Because of the US: property crashes, stock markets crash, even Gold and Platinum lose value, and that is not all, the US also destroy countries.

Live for the moment is the way to go.
I have teenagers too and they will blow any inheritance in one year.

Live your life, time is all currency you have

Let’s play the game.

Almost entry level popular SUV (GX 2WD). New R485500.00

10% deposit, 9% interest, 60mo = R9155

Flexible option = R14353

R5198 a month for flexibility?

Yeah, I thought there will be a PREMIUM to pay for all this convenience (to also “unsubscribe” from a certain car).

I think you might be underestimating how difficult it is for the average would-be car buyer to scrape together a R50k cash deposit for that vehicle (especially now, and especially if they’re underwater on an existing vehicle). Cash flow is almost the pure view of car buyers, especially younger ones these days.

Then, also remember that that R5198 ‘variance’ includes all maintenance and insurance, and the gap isn’t suddenly as big.

(Not that I’d pay R15k a month to rent a vehicle, or spend R500k purchasing one on HP either – just to make a point it’s not completely unrealistic here)

I looked at the Volvo offering too… Same thing.

Owning the car was a good 40% cheaper (insurance included) than this rent-but-never-own-anything model.
And owning a car isn’t cheap these days anyway.

Add to R9155 + Comprehensive Insurance R2000 + Tacker : R250 + Licence + R60

Just buy a reasonably priced second hand car, pay it off and drive it until it falls apart.

Amen. I try buy mine cash too if I can

Also “consuming cars”. LOL. Don’t choke on that.

LOL

“You go out at night eatin’ cars
You eat Cadillacs, Lincolns too
Mercurys and Subaru
And you don’t stop, you keep on eatin’ cars”

Sounds much better when sung by Debbie Harry of Blondie fame.

While this idea might sound strange at first, it is quite similar to another kind of “subscription” we use on a daily basis. As a matter of interest, I did a simple calculation to determine the value of a slave at the time of abolition in the USA in 1862. The US government “expropriated slaves with compensation” and paid an amount equal to 15 ounces of gold per slave. That is equal to R405 000 in current purchasing power – the price of an average new car in other words. A slave was a very valuable asset and form of collateral for loans, and most slave-owners would have gone bankrupt if slaves were expropriated without compensation.

Mortality aside, nobody even wants a slave today because it would be far too expensive. At the “subscription cost” of the minimum wage we can employ a person who is responsible for his own housing, food, and clothing while we save the capital outlay. The running cost is lower and it requires no investment in fixed capital. It is a much better deal for the employer, but is the current system really better for the slave?

Correction – “Morality aside”. I am ignoring the very serious and real moral issues about slavery and the loss of freedom and human rights for the sake of the argument. I am merely trying to determine the nominal value of the “asset” for the owner. I also try to put the cost of the current minimum wage into perspective.

An uber black a day might even be cheaper especially as a second vehicle

Total drivel : the only car u can afford is what u can pay cash for :
Buy on credit and u are driving a vehicle called Ego :
To buy a rapidly depreciating
“Asset” on credit shows the highest form of stupidity :

Agree – and only discover your mistake on the day you retire or suddenly need a replacement income, e.g. retrenchment, covid, etc.

Good concept! Innovative. Good luck.

End of comments.

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