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Car finance providers are preparing for ‘creative destruction’, guest opinion

Gerry Kouris of Alphera Financial Services

As wider consumer trends and preferences change, successful companies such as Netflix and Spotify provide evidence of a growing move towards ‘subscription’ services.

It is no surprise, therefore, to learn that prospective car ‘buyers’ want the same from our industry.

In a recent report on UK car finance, market intelligence agency Mintel found that 56% of 18 to 24-year olds would be happy to borrow, rather than buy, a car if it meant they could afford a better one.

71% of the same age-group are drawn to the idea of combining all car costs, such as rental, insurance, tax and maintenance, into a single monthly payment.

The car industry, however, is more complex and multi-dimensional than most, and it’s difficult to predict the exact ways in which the ‘subscription economy’ will change the way we do things, and at what pace.

That said, motor retailers should certainly prepare themselves for significant changes to the tried and tested business model.

Adaptability is important, although not enough to maximise the opportunities presented by changing consumer preferences.

Merely adapting to change will result in a constant battle for survival.

To truly harness the potential of the subscription economy, automotive business leaders must fully comprehend the idea of ‘disruption’, and integrate its practical application into business strategy.

Disruption is the process of having a ‘creative destruction’, in which a fast-growing innovation replaces or even abolishes an existing business model or practice.

Clarity, vision and agility are all required as conditions for disruption to take place.

Agility and innovation are what makes an organisation able to not only understand consumer trends but set trends and create new business models.

Car finance lenders will have an important role to play, developing products that will enable dealers to offer customers a hassle-free, subscription-based ownership model.

Utilising greater transparency afforded by Open Banking, lenders will be able to make an appraisal of affordability based less on credit history and more on the consumer’s future ability to pay.

We can look forward to a future in which lenders and fintech companies collaborate to develop new payment platforms and car manufacturers act more like mobility providers rather than engine and chassis manufacturers.

Clearly we are not at the stage yet where the subscription model is ready to truly ‘disrupt’ motor retail, in the sense described above.

However, as a growing body of research shows, a new generation of car ‘subscribers’ are willing to explore alternatives to the current ownership model – and what is merely a lucrative niche at present could become the market norm in the future.

Author: Gerry Kouris, marketing manager at Alphera Financial Services


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