New Mobility: from the possession to the use of the automobile

At its inception, the automobile was a luxury object, reserved for the socially elite, who, using this new piece of technology, could establish their “social power” in cities.

I have, therefore I am…

Of course, the purchase of an automobile wasn’t considered to be “settled cash.”

So, under the leadership of Alfred Sloan, GM launched GMAC, the first “bank” of a car manufacturer.  The manufacturer thus borrowed and the customer refunded the monthly payments! At the same time, GM developed a portfolio of brands, from Chevrolet to prestige with Cadillac.  The funding helped the “average” American to acquire more and more prestigious vehicles, without his neighbors even knowing he’d made credit.

This sales method was introduced in Europe, notably via OPEL, a new subsidiary of GM (1929).

Following the Second World War, the automobile becomes a formidable key to freedom, and thus, sales explode.  Each person saves up to buy their own car, which is always associated with social status. Although some distributors try to propose financial offers simultaneously with commercial proposals, the majority of purchases are made in cash or with financing provided by traditional banks in the form of simple credit.  Credit is then connected to the notion of property, not to be used on its own.

At the end of the 80s, thanks to a the famous “Fifth VAT” rule, the LOA (Location avec option d’achat, or rent with the option to buy) opens its first breach.  Indeed, it was then possible for the finance company to recover 1/5 of VAT (then 33.33%) per calendar year.  Therefore, if you take a delivery in December of year N and resell your car in January of year N+1, you “get back” 3/5 – thus, the “quasi” free credit was born!  To amplify the phenomenon and move upmarket, distributors offered progressive monthly payments often with a very important level reached after 13 months.  The game therefore consisted of the customer giving the car back before they reached that level, otherwise, the customer would be experiencing some difficulties at the end of the month…

However, this rule was removed to return to a pro-rated time VAT recovery, thereby increasing the cost of credit...and ending “free credit.”

We will quickly pass on to balloon credit proposals or other offers always aiming to transform the price of a car for rent, which had not been as successful as the previous LOA.

However, at that time, the majority of customers remained attached to the idea of owning a car.  I always remember the frustration of customers who had the name of the bank on their registration card!  This was mandatory in the case of an LOA.

Toward a 360° rotation

In recent years, we have been witnessing the development of a new underlying trend.  Long-term rental offers, including in the majority of cases, the costs of maintenance and insurance are essential in the retail market, following the trend of the business market.  Most manufacturers don’t give monthly loans anymore, in lieu of the traditional price.  Therefore, anything is possible and customers can access models which are much more “upscale” than would have been possible by purchasing with cash.  Most often, financial support is provided by a leader in the banking sector (BNP, Santander, etc.), with the manufacturer banks being less and less competitive on the market (they have also often disappeared, even if their names still exist, but with a banking actor in the back office).  However, one important thing has changed. These offers can only work with a buy-back commitment, which is usually provided by the distributor. It’s the best of all worlds; the distributor sells the car, keeps the customer coming back to the shop thanks to a maintenance contract (making up for time lost in hourly rates), then on occasion gets a buyback and offers the customer a new contract in a “never-ending story,” with, thanks to a more and more powerful CRM, a simple and effective sales follow-up!  The new holy grail of car distribution!

I just a few decades, mindsets have changed dramatically and customers once so attached to owning their cars, symbols of social status, are today fans of financial offers which allow them to have more for the same price.  We went all the way from property ownership to use!

So, why not go further?

We can imagine, for example, subscribing to a mobility offer rather than a long term rental offer.  This mobility offer may include the use of car-sharing vehicles for urban use (preferably EV) and short-term rentals for longer travel (thermal or hybrid).  It is with this option that ADA has chosen to replace the Autolib on Paris (application Moov’in.Paris). No more parking fees, maintenance, insurance…just the right car in the right place at the right time (at least in theory).

We can also imagine sales by subscription, a new trend in the U.S. in exchange for a fixed rent ($900 for a Lincoln, $2,000 for a Porsche, etc.) where the customer buys the rights to use the car that suits them (sedan, coupe, SUV, etc.) and to change whenever they want.  The rent is no longer linked to a particular vehicle, but rather the “right” to mobility!

What is happening to distributors in this new paradigm?

We have seen that, for every long-term rental sale, the distributor must agree to take back the car at the end of the contract.  What is a great opportunity to retain customers and better control the second-hand market can also turn into a fatal “weapon” in the event of a market downturn, as we currently know about diesel (from 70% of the market to less than 40% in a few months!).  Who will be able to accept the discrepancy between the commitment of recovery (fixed when the contract is signed) and the real value of the vehicle on the market? Not to mention the fact that a recovery commitment is a debt that must be specified on the account statement.  Is this the case for all distributors?

In addition, if customers are willing to move from possession to use, it also opens the market to new players, often from the digital world, who will develop the right “app” for the customer to have access to the offer.  Our increasingly digitalized world has largely removed the main barriers to entry, including the importance of a local network in order to relay to the manufacturer on the ground.

Moreover, the manufacturers, especially the German ones, restructure their companies with this trajectory in mind.  For example, Daimler has just separated their activities in the car, truck and bus divisions…and new mobility! Others only consider their distribution via the digital channel (For example, Lynk & Co., subsidiary of Geely and sister brand of Volvo).

But, if customers can manage their mobility using only a simple app, what relationship do they maintain with distributors and traditional car salesmen?  Can we imagine direct sales digitalized, with delivery to the customer’s home and maintenance (reduced more and more all the time, especially with) provided by a service network (multi-brand)?

On the other hand, we can also imagine distribution groups proposing their own mobility offers, including a local car-sharing offer, and thus controlling its customers…to the detriment of its manufacturers.

Let’s reinvent the automobile of the future

In conclusion, we are currently experiencing a profound change in the automobile, amplified by a change in mindsets about it.  The possession of a car, the basis of the current car distribution structure, is out of style.  The digital revolution allows for direct contact with clients without having to go through a dense and expensive commercial network…which does not always meet customer expectations (customer satisfaction with their dealers).  Each actor has to find a way in this new world that is being built before our eyes. Does the end of uniformity and standardization offer anything for the automobile? As B. Rakoto states in his latest book, The Disembodied Large Organizations, “Make room for automobile explorers and creatives so that they can invent the mobility of tomorrow!”

Patrick DAMIAN

Directeur General / Managing Director - Automotive - Retail - New Mobility & Electromobility