The Decision

Gaby Washington just left the dealership after test driving a number of vehicles feeling both

excited and a bit overwhelmed. Many changes had happened in the past three months, and she

was on the precipice of making a decision about her first car. Having just graduated with her

MBA, Gaby was looking forward to starting her new job as a financial auditor just outside of

Houston next month.

The job would mean travelling around the region to a number of local project sites and working

with the local controllers. Up until this point, she never needed to own a vehicle. Like most of

her friends, she used Uber and Lyft to get around the city and if she needed a vehicle for any real

length of time, she booked one on Turo. However, she knew that with all that time on the road

with her new job, it was time for a car.

Her signing bonus would cover this significant investment but Gaby would only settle for a vehicle

that lived up to her expectations. Ever since she was a little girl, she had always wanted to drive

a Jeep Wrangler. Being in her new city, she loved the idea of riding around with the top down

and heading to the beach in Galveston. Not to mention, she always enjoyed back country

camping, which is something a Wrangler could help her further explore. At the same time, with

all the time on the road for her job, she might want something with additional interior features like

a Jeep Renegade or Compass. Then again, with the move into her new apartment in Midtown

and weekend haunts to garage sales something with more hauling capacity like a Ram 1500

Truck also might be useful. It seemed like a no-win situation choosing just one vehicle and

possibly compromising one capability for another. It was an overall tough decision but one that

needed to be made in the next few weeks.

While scheduling a test drive at the dealership was a great way to experience the different

vehicles, and helped Gaby weigh the pros and cons of each, she had to turn her attention to

financing options. Gaby, like most consumers, wanted to avoid haggling at the dealership and

be prepared before returning to the dealer and sitting with the Finance & Insurance Manager1.

Given her degree, she thought understanding the numbers would be easy. Her first stop, as with

most research these days, was the internet. Gaby pulled up the dealership website and began

to read through the Finance and Leasing terms. Looking at the options for a Jeep Wrangler

1 The Finance & Insurance (F&I) Manager sells new and used car buyers financing and insurance programs. F&I managers also work with financial lenders to give fair

interest rates to buyers and programs

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Unlimited Sport 4x4 with an MSRP of $38,555 and a dealer advertised price of $34,470, Gaby

read the following fine print2:

FINANCE $546/mo.

Finance this vehicle with $3,855.50 DOWN at $546.05 for 72 months at 4.20% APR. TOTAL DUE AT

SIGNING is $3,855.50. All tax, title, and vehicle registration fees are additional. Offer available to all

customers with credit ratings over 750. Total monthly payments are $39,315.60. Not all applicants will

qualify. Higher finance rates apply for applicants with lower credit ratings.

On the surface, the lease payment seemed more attractive as it was more than $200 less per

month. Both offers required the same amount down, and both were subject to the same credit

qualification score of 750. Gaby admittedly had not looked at her credit score in a while and had

no idea if she would actually qualify. After all, she was graduating with almost $30,000 in studentloan

debt3, and she had no other credit history to her name. She was curious about how much

the rates would fluctuate if her credit rating were a lot lower4.

Obviously, there were many variables to think through and a lot to consider. It would be much

easier for Gaby to continue with her current mode of transport and not buy a car. However, she

knew that using a ride-hailing service and borrowing cars through a car-sharing platform would

not give her the flexibility she now needed. Gaby decided to do some further research on

alternatives to traditional car ownership. She remembered that she had recently learned that

some companies had started selling car subscriptions. Would a program like that make sense

for her situation?

After a few clicks and a Google search, she came across a local-area dealer offering a

subscription to a similar Jeep Wrangler Unlimited Sport 4x4.

2 As of 6/29/2019 from https://www.bayshorechryslerjeepdodge.net

3 https://www.businessinsider.com/average-american-millennial-net-worth-student-loan-debt-savings-habits-2019-6#but-the-average-american-millennial-is-alsocarrying-

a-crippling-amount-of-student-loan-debt-14700-5

4 Average credit rating for 18-29 year olds: 652 - http://money.com/money/5112478/average-credit-score-by-age/

LEASE $337/mo.

48 month closed end lease with $3,855.50 DOWN and payment of $337.12. TOTAL DUE AT SIGNING

is $4,192.62. Customer is responsible for manufacturer suggested maintenance and auto insurance

throughout the lease term. Penalties will apply for payment delinquency. Early lease termination fee may

apply. Excessive wear and tear fees may apply. All tax, title, and vehicle registration fees are additional.

Offer available to all customers with credit ratings over 750. Lease includes 10,000 miles per year with

additional charge of $0.25 per mile. Total monthly payments are $16,181.76. Option to purchase vehicle

at lease end is $26,181.85. No security deposit is required. Payments include $595.00 acquisition fee.

At lease end, lessee will be liable for a $395.00 disposition fee. Not all lessees will qualify. Higher lease

rates apply for lessees with lower credit ratings.

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Subscribe $770/mo.

Subscribe to this vehicle on a month-to-month basis, cancel anytime. Monthly payments include

maintenance, road-side assistance, and insurance coverage. Simply download our Subscriber App on

your mobile phone, enter your information, select your vehicle, and pay the enrollment fee of $350. Once

approved, you will be contacted to arrange for vehicle delivery. All customers subject to verification and

qualification. Not all applicants will qualify. Monthly limit of 1,250 miles. Houston use tax rate of 8.25%

additional

A few things stuck out to Gaby. At more than double the cost of the lease payment, this seemed

like a very expensive option. Still, with no down payment and only a month-to-month commitment

there was something she liked about it. Growing up in the era of Netflix, Stitch Fix, and Class

Pass she was used to paying a flat monthly fee with no long-term commitment and this "all-in"

monthly payment seemed appealing. She really wanted to learn more about these programs and

whether or not they were right for her.

The Current State of Vehicle Subscription Services

By definition, a subscription business model is one in which a consumer pays a recurring fee on

a periodic basis (monthly, yearly, seasonally) for access to a product or service. While in

existence since the early 17th century when it was first pioneered by book publishers, this model

for consumption has grown in popularity in the past 10 years.

According to McKinsey, the subscription e-commerce market has grown by more than 100% a

year since 2014. With more than 15% of online shoppers having signed up for one or more

subscriptions, the market has evolved from entertainment and media to include companies like

Amazon Subscribe & Save, Dollar Shave Club, Ipsy, Blue Apron and Birchbox (the five most

popular subscription sites in 2018)5

In 2017-2018, these models began invading the vehicle subscription market in North America and

Europe. The markets saw the emergence of a number of software providers, technology startups,

dealer-led programs and mainstream, luxury and super luxury OEM programs.

A key distinction between a subscription and other automotive financing options is that the

customer never actually owns the car. Instead, subscribers gain the right to use a vehicle for an

all-inclusive monthly fee. These fees typically cover insurance, roadside assistance and

5 https://www.mckinsey.com/industries/high-tech/our-insights/thinking-inside-the-subscription-box-new-research-on-ecommerce-consumers#0

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maintenance. With certain car subscription programs, users have the ability to "flip" in and out of

different cars with just a few days' notice, often with a concierge delivering the vehicle.

While these programs have proliferated and related media coverage has hyped the model as the

next evolution of the car-buying experience, it is not entirely clear that consumer adoption of these

services has truly taken off. The exact benefits for an Original Equipment Manufacturer (OEM)

are difficult to identify and quantify.

FCA's Announcement

At FCA's Capital Markets Day in June 2018, Mike Manley, Chief Executive Officer, Fiat Chrysler

Automobiles, announced that Jeep Brand would launch a pilot program for a Subscription service

in 2019. Investors at an event in Balocco, Italy, were told that the move would give Jeep fans

wider access to the brand's vehicle portfolio. For a monthly fee, members will have access to a

variety of FCA vehicles. At the time, Mr. Manley announced that the program would be offered in

multiple formats with varied options for insurance coverage, vehicle selection and concierge

services.

FCA has already launched Peer-to-Peer and Borrowing programs, while the details of the

subscription program are still to be announced. The challenge for FCA will be introducing a

program that offers something unique to the market that appeals to a changing customer base.

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Your Assignment

The role of the Automotive OEM in the evolving landscape of mobility is up for discussion. Several

OEMs have begun to experiment with alternative models for consumer access to transportation

instead of ownership through Subscription programs. These models are varied and complicated,

shifting dramatically away from the current OEM-Dealer franchise model for the distribution and

selling of personal cars. Further, the value proposition for customers in these models is difficult to

identify.

Your team is to assume the role of an Independent Consultant firm to help FCA's Director of

Mobility Programs understand the subscription landscape from an OEM and customer

perspective. You know someone like Gaby and her dilemma is an integral factor in shaping the

business model in this new age. The goal is to provide a recommendation to FCA's executive

leadership that addresses the following topics:

Compare and contrast the total cost of ownership for Gaby under the various vehicle

ownership/access models (finance, leasing, subscribing)

Define a clearly articulated value proposition for Gaby in choosing a subscription service.

Identify several specific consumer profiles to which an Automotive Subscription would

appeal.

Develop a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis on the

implications of Subscriptions as the next wave of consumer facing selling tools and their

impact on the Automotive Industry

Identify various scenarios around who owns the assets in a Subscription program. What

are the implications with each?

Is an Automotive Subscription product offered through an OEM (and their affiliated

dealers) a viable and necessary customer sales tool in order to compete in the evolving

landscape? Why or why not?

What changes, if any, would need to be made to the current franchise relationship

between an OEM and a Dealer in order to support these programs?

In what way could FCA's subscription program offer something unique to the market as

compared to other in-market programs?

In addition to conventional marketing, how should FCA reach and explain its program to

consumers like Gaby, and African American consumers specifically, to select a

Subscription service?