Automakers in Brazil begin focus on subscription car business model

RIO DE JANEIRO, BRAZIL – The subscription service, created by car rental companies, is now offered directly by vehicle manufacturers – at least seven have options. Among the advantages, clients need not worry about documentation, maintenance, and insurance.

Having access to a new car by subscription, similarly to streaming services such as Netflix, is the most recent sales modality that automakers have brought to Brazil from their headquarters. For analysts, this type of lease, which spans from one to three years and leaves only the expenses with fuel and fines in consumers’ hands, will represent an important part of the sector’s business.

Introduced by rental companies, the service was conceived as a long-term rental, similar to leasing. As of mid-2020, automakers entered the industry and adopted the policy of including in the contract most of the costs with the vehicle, such as insurance, maintenance, and taxes.

Seven brands – Audi, Caoa, Fiat, Jeep, Nissan, Renault, and Volkswagen – have launched programs. Like the streaming service, which has differentiated packages, the car subscription price depends on the model, contract term (from one to three years), and monthly mileage.

Most automakers have not yet disclosed the number of subscriptions, but one of them now celebrates the results. “In a little more than two months, we managed to sign 1,500 contracts,” says Ricardo Gondo, president of Renault Brazil. Called On-Demand, the service has attracted mainly consumers aged 35 to 45.

In the executive’s opinion, the current interest is partly linked to the pandemic, due to people’s insecurity in using public transportation and app cars. “But in the medium and long term, it will be a trend, just as it already is in Europe.”

For Gondo, part of consumers do not wish to worry about the bureaucracy of acquiring and maintaining a new car (documentation, paying taxes, insurance, and maintenance). The subscription includes all of this.

Some customers do not want to immobilize their capital with a purchase, and those who can’t afford to buy a car in cash or even make a down payment on the financing, can afford the monthly subscription.

Renault subscribers’ preferred car is the Kwid Outsider, whose monthly contract varies from R$1,100 to R$1,440. Soon, the company will also offer the electric Zoe in the program. The advantage between subscribing or buying is an account that involves several variables.

For Ricardo Bacellar, from KPMG in Brazil, the country’s subscription service will still go through a learning phase for automakers and consumers. “The offer must be attractive enough to attract the customer.”

He believes the market is still not very attractive to the buyer of cheaper cars. On the other hand, in his opinion, subscription can “open a gateway for the resumption of production” because the number of people who no longer want to own a car but to use it is growing. He also sees the modality as a window for the greater introduction of electric cars in the country.

“Today, buying is unfeasible for most people, due to the high cost, but if consumers have the opportunity to test an electric car and see that the infrastructure works, it is possible that, in the future, automakers will have a scale for local production,” Bacellar says.

The president of the Brazilian Association of Car Rental Companies (Abla), Paulo Miguel Junior, informs that 8% of the rental companies’ 1 million vehicles fleet are intended for subscription programs. This participation, he says, tends to double in two years.

Besides the cost, one of the advantages of this modality, in his opinion, is that the consumer “gets rid of all the work of documentation, maintenance, and the most stressful part, which is the time of resale.” Miguel Junior affirms that many times dealerships offer very low prices for the used car, so people making the sale on their own can generate insecurity in receiving interested people at home.

In Localiza’s program, Meoo, created in November, there are subscription options for up to four years. The rental company calculates savings of up to 20% in relation to owning a car. The company is the first to have an exclusive subscription store for Belo Horizonte (MG).

According to Movida, a subscription is a good option for those who want to sell their cars to invest in other projects or choose to migrate from public transportation to individual transportation without owning a car. One of the company’s offers is the Fiat Mobi Like, for three years, at R$ 897 in the first three months and R$ 999 after that.

Miguel Junior believes that the modality can be extended to used cars. “In Brazil, no one has yet entered this segment, but in the US, companies are operating this way,” he says. “The subscription doesn’t need to be restricted to new cars, and if it is extended to used cars, it will move the market more,” agrees Bacellar.

Service is an option to Uber and for those who want a great car

After living two years in the U.S., Lucas Dolabela, 34, returned to Brazil in 2019 and decided not to own a car anymore. He started using Uber until mid-last year, when, due to the pandemic, he thought it was better to return to individual transport.

As he didn’t want to “tie up” money in purchasing a car or have a “headache” with insurance, taxes, and maintenance, he decided to sign a Chevrolet Onix sedan at Localiza. With a degree in economics and finance and partner of the Horizonte Capital investment fund, Dolabela did the math and found the mode advantageous.

He subscribed for two years to drive 1,000 km per month and pays R$ 1,400 monthly. “The car costs R$80,000; if I put the money in an investment with some risk, I would have a return of R$3,200 or almost two installments,” he calculates.

“Including the devaluation, equivalent to R$16,000, it is already more than ten installments,” Lucas compares. When he completes the two years, he will renew the subscription and, as he likes cars, he will test different models. “The idea is to keep it forever,” he says.

Rafael Barbalho, a technology entrepreneur, resented not having premium car rental options in the market. “I kept looking for options, but it was hard to find. He found the format he wanted when subscription came along.

Barbalho decided to sell his and his wife’s cars and invested the money, and leased an Audi RS5 for about $19,000 per month. He chose the model, color, and options, and the rental company Osten Fleet imported the car exclusively for him. “The customer chooses the model as if he were going to buy it, but we buy it through a subscription contract,” explains Liandra Boschiero, Osten Fleet’s manager.

The terms offered by the company are from 12 to 48 months. Upon return, the car is resold. The Osten group owns dealers such as BMW, Jaguar, Land Rover, and Jeep and works with insurance.

The businessman has signed a two-year contract for the RS5 and intends to make a contract for his wife. In cash, the model would cost R$ 660,000. At 32, he says he has been working since he was 14 and now wants to “enjoy” the things he could not have before.

Although it buys cars chosen by the customer, Osten Fleet also brings to the country models representing innovation. Recently the group imported two Model 3’s from Tesla, and another four Model Y’s are on the way. One of the Model 3’s, which costs R$700,000, is with the signing almost closed. Although the cash price is one above the RS5, the subscription is cheaper because the maintenance costs of electric cars are lower than those of a combustion car, explains Liandra, and should be around R$ 18,000.

Source: O Estado de S. Paulo.