Are Subscriptions the new leasing for evs?
Episode 03
On this episode, we’re once again joined by DriveItAway’s Founder & CEO and EV thought leader, John Possumato.
John returns to add to our previous conversation from Episode 1. In this installment, John adds more context as to how DriveItAway impacts dealers in positive ways as well as more background on current EV sales and seller adoption.
Episode Highlights:
(0:00) – Introduction
(0:36) – Catching up with John
(0:59) – Why do subscriptions (specifically in the EV space) make sense for dealers
(2:28) – How dealers can “take two bites of the apple”
(3:44) – How DriveItAway can positively impact a dealer
(5:40) – Episode wrap-up
Transcript
Elena: And I am back with my favorite friend John Possumato, Founder and CEO of DriveItAway and we are at Used Car Week live. So if there is some background noise, we are doing this live. And there is a lot going on here today. So, John, we just talked about all of the many benefits for consumers with evey subscriptions. Why do subscriptions particularly in the EV space make sense for dealerships? I know that’s a loaded question, but you’re the perfect person to answer this question.
John: Well, short answer is because it’s a stepping stone to ownership particularly for EVs. But let me take a few steps back. I see subscription ownership models as very, very similar to where consumer leasing was 20-25 years ago, and it just opened up as a financing technique. And just before the car crunch, it opened up a whole new vista for luxury vehicles. 30% of the vehicle models ended up being leased. It opened up more consumers and it opened up more sales for dealers. This is particularly similar, I think, that subscriptions are today at the very beginning, right? There’s problems that dealers are saying: margin compression and EVs are limited, you know front end F&I, because remember, an EV has 200 moving parts versus the gas engine has 2000. There’s less to fix. There’s no oil changes, right? Shrinkage in fixed ops, is there. A subscription very similar to a lease, in the sense that it allows for really two bites of the apple for the dealer, they can put a vehicle on subscription and then they can sell that vehicle as a used car. Where it differs is the timeframe is much shorter, and it’s not fixed. So we talked about all the advantages to a consumer, but there are many, many advantages to a dealer as well.
Elena: I love the phrase that you use the the two bites of an apple. Can you go through and explain, elaborate a little bit more as to why that’s so significant for dealerships today, and also in the environment that we’re going to be in in 2023?
John: Absolutely. And you know, there’s the government incentive with the carrot at the end as well. So if you’re a dealer and you have a mainstream EV, you put it on a subscription model, now you’re paid a monthly subscription to ownership, that person can buy that vehicle at any time that they want to. But let’s say they don’t…you’re writing it down every day with a consumer subscription and with the payment, and the government just gave you a big bonus January 1st 2023, which is a $4000 tax incentive for anything two model years old, going to somebody that makes $75,000 or less than $150,000. That’s 30% or $4000. It adds up to a nice big rebate on that. So as a dealer, I’m making money when I sell it in my subscription service. I’m writing it down with consumer payments, and now I’ve got a very lucrative used car sale that’s now juiced by the government for $1000 bucks.
Elena: It doesn’t sound like a bad deal. So if I were a dealer in New Jersey, and I want to potentially use DriveItAway, what would be one thing that you think would resonate with me?
John: Let me back up a little bit and tell you a real thing that happened and go back into the story. So I was sitting at a JD Power conference before NADA in March of last year, I believe and I heard the interviewer interview Mike Manley, the former CEO of Stellantis, is currently CEO of AutoNation and they asked him, How are you going to handle margin compression with EVs and his answer that was very interesting. He said, Well, we’re exploring new mobility models, and we’ve got to always remember that we’re manufacturing used cars. And then they made a big deal with Autonomy which is a subscription service for EVs. So you know, if I’m a dealer in New Jersey or anywhere, I’m looking at that and I’m saying, you know, there really is a method to the madness if I’m going to get good used vehicles at wholesale prices. What better than to create my own? And what better to create my own with with EVs? Where, indeed, as I as I mentioned before, there’s a tax incentive on the hood, right? Let’s say I can do 10 of these a month over 24 month period and 50 EVs on the road being written down. And now I’ve got 240 potential sales, actual sales because I’ve written the wholesale unit down and I’ve got cash on the hood to boot what would be better than that in this environment?
Elena: Really, what we’re looking at here for dealerships is a new way to sell a car, would you agree with that?
John: Absolutely. But it’s a new way to sell really two cars with the same car if that makes any sense at all.
Elena: Say that again.
John: It’s a way to make two sales with the same car.
Elena: John, thank you and yes, we will be back with our third installment and hopefully the guy pushing the table will finish by the end. Yeah, this is this is kind of crazy with the background noise. Thank you, John.