The door is open for car rental and subscriptions — if the industry wants to walk through it. - Image courtesy of Sixt.

The door is open for car rental and subscriptions — if the industry wants to walk through it.

Image courtesy of Sixt.

On paper, the idea of a vehicle subscription service fits perfectly with today’s mindset in which ownership has lost its cache and we’re subscribing to everything from movies, razors, and dinners.

To date, however, subscriptions for autos have had a bumpy ride. In June, Mercedes shuttered its subscription service after two years. Ford sold its subscription service to Fair in 2019, just before Fair laid off 40% of its workforce. GM put Book by Cadillac on hiatus in 2018 with intentions to revive it but hasn’t yet announced its plans.

Many programs remain, from OEMs and third parties to dealer groups, though the landscape today is littered with more closures than startups. It seems we’re still waiting for subscription’s promise to be realized in significant numbers.

Enter Sixt, which launched Sixt+ in the U.S. this week. How does Sixt think it can succeed at subscriptions where others haven’t?  

“During this pandemic, you’re either sitting at home with less of a need to travel, or you need wheels and a much more flexible solution,” says Sebastian Birkel, president of Sixt U.S.

Sixt is banking on the latter.

Sixt+ has some common subscription service attributes: one monthly price includes depreciation, routine maintenance, and service costs. The program can be cancelled on a monthly basis. Customers can choose from different model categories, mileage allowances, and protection packages.

Plans start from as little as $459 per month for a Kia Rio subcompact sedan or similar, and then stair step through 15 price tiers to a Chevy Suburban or similar for $979 a month.

In other ways, the plan deviates: While some subscription services allow multiple car swaps for the same monthly fee, Sixt+ customers can change to a new car or model category for $49 per swap. Changing categories will trigger a new price tier. This is a change from Sixt's previous subscription service, Sixt Flat Nonstop, in which users choosing the Sixt Flat Seasons package could change vehicles by season.

Birkel believes one of the biggest obstacles to date for subscription services in the U.S. is consumer lease advertising. “With commercials that offer a Camry for $199 a month, the consumer is brainwashed into thinking that’s the monthly cost of the car,” he says.

What isn’t mentioned in that come-on price are unrecoverable down payments, maintenance costs, new car registration, and other dealer fees, adding up to hundreds of dollars. “How can you educate people on the real value of mobility and make them understand they’re paying a lot more than if they got (a car through Sixt’s subscription service)?” he asks.

One benefit of subscription services is transparency; the Sixt+ price menu is clear from the start, as it should be.

Now to the other side of the fence: The first tier of $459 works out to $15 a day, substantially less than Sixt’s lowest daily rate. Is there room for Sixt to make any money?

Birkel calls the $459 entry point “purposefully priced,” though that isn’t necessarily the out-the-door cost, as mileage packages, additional drivers, and protection coverages need to be factored.

Birkel brings up the lower cost structure: The subscription cars will be provided through downtown locations that don’t carry airport’s exorbitant facility fees and taxes. Labor costs on monthly rentals are reduced with fewer employee interactions. The equation makes even more sense if the customer keeps the car for a few months, Birkel says.

In the U.S., Sixt is known as a premium leisure brand, so subscriptions are an opportunity for customer acquisition in new segments, such as corporate mobility needs or expats on temporary assignments, for instance.

From Day One, Sixt promises that the selected vehicle categories will be available to customers at 30 U.S. Sixt branches within 24 hours of contract signing. Yet Sixt+ doesn’t have a dedicated fleet to start. Birkel says Sixt will transfer vehicles from its daily rental fleet into subscriptions as needed.  

Customer take rates over the next few months will indicate the types of vehicles that will be popular, and Sixt will respond appropriately. “As of now there is a lot of fluidity, but that will change as we get our footing,” Birkel says.

Germany provides some direction, as Sixt+ has been up and running there since late June. While Birkel wouldn’t give exact figures, the German counterpart is seeing a steady daily flow of new subscribers. “It’s very quickly becoming a relevant mobility option, not with 150 cars (provisioned to date) but with more than a thousand,” he says.

So far, German subscribers have been going for the more value-priced categories. Birkel thinks they’re leaving value on the table, as Sixt’s more expensive subscription classes stack up better compared to their lease counterparts or other subscription services. Indeed, Sixt+ offers a Mercedes C Class in the U.S. for $850, while BMW’s entry tier to its subscription program is $1,099.

Which brings us back to the question: Can Sixt make any money?

Birkel answers generally: “Remember when the OEMs owned car rental companies and it was seen as great vertical integration?” he asks. “They gave up on them. I can’t tell you why exactly, other than the fact that auto manufacturers are great at building cars, and we’re great at running a service business.”

The secret sauce to that service is fleet management — overlooked by the casual observer, yet intrinsic to success or failure for any service with high vehicle turnover. “We are experts at managing huge fleets,” he says.

Unlike automakers that are focused on building cars, and their dealers who are focused on selling them, car rental by its nature is a cycle of transactions, both with the consumer at the rental counter and the fleet. Depreciation is king, dictating when to pull a car from fleet to maximize its sale, though minding many external factors such as hold times, regional and seasonal patterns, and the capitalized costs of the new cars coming in.  

And when you analyze model to model, depreciation doesn’t hold fast to every rule.

Of any entity that touches vehicles, car rental seems best suited of any to run a subscription program.  Though car rental has been largely on the sidelines up to this point.

Hertz has Hertz My Car but has been relatively quiet about it, and some smaller operators, such as Budget Harrisburg’s Solomon Cramer, have been running successful programs for years that are essentially another way of saying “long-term rental.”

Like any new process intrinsic to something as basic as transportation, we might still be at Subscription 1.0 in terms of finding the right mix of service and profitability.

Yet as the car rental industry cedes admittedly unprofitable one-day rentals to ride hailing, and as airport rentals seem prone to macro-economic factors now more than ever, the door is open for car rental and subscriptions — if the industry wants to walk through it.

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Author

Chris Brown
Chris Brown

Executive Editor

Chris Brown is the executive editor of Business Fleet, Auto Rental News and Fleet Forward. Through these publications and related trade events, Chris covers all aspects of the fleet world, including fleet management, the new mobility ecosystem, manufacturer fleet activities, the fleet leasing industry, vehicle remarketing, and rental industry news.

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Chris Brown is the executive editor of Business Fleet, Auto Rental News and Fleet Forward. Through these publications and related trade events, Chris covers all aspects of the fleet world, including fleet management, the new mobility ecosystem, manufacturer fleet activities, the fleet leasing industry, vehicle remarketing, and rental industry news.

View Bio
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