Porsche is expanding its app-based subscription service to four new cities in the U.S. and Canada, deepening its experiment in flexible car ownership even as other automakers back away.
The luxury sports-car brand of Volkswagen AG is adding Las Vegas, San Diego, Phoenix and Toronto to the pilot program it started in Atlanta almost two years ago. The price of its two-tiered monthly subscription service, Porsche Passport, will increase $100 to as much as $3,100 a month. Porsche Drive, a shorter-term program, has a four-hour minimum that costs as little as $269.
Automakers are dangling subscriptions to try to reach younger consumers accustomed to streaming movies on Netflix or summoning rides from Uber, with mixed results. While Porsche and Mercedes-Benz are expanding their tests, General Motors Co. pulled the plug on its Cadillac Book subscription service in December and Volvo Cars is battling California car dealers over its Care by Volvo program, which combines lease, insurance and maintenance into one monthly payment.
“It’s not fundamentally a cheaper way of consuming your mobility,” said Mark Wakefield, head of the automotive practice at consultancy AlixPartners. “There has to be enough people that want to pay for the convenience factor.”
Most subscription services cost more than a comparable three-year lease, which limits their growth potential, according to a study that car-shopping researcher Edmunds released last year.
That may not be a problem for a company like Porsche AG. The $2,100 tier of Porsche Passport is 20% more expensive than leasing a Porsche for three years, the automaker said. Still, 180 people subscribed over the course of two years, 80% of whom had never owned one before. Typical users were in their mid-40s, eight years younger than the average Porsche owner.
“The question is not a bookkeeping exercise or accounting; the question is how much are you willing to pay for that much freedom?” said Klaus Zellmer, head of Porsche Cars North America.
Monthly subscribers can drive as many as 20 different model variants, have vehicles delivered to them, and only pay for gas, after a $595 one-time activation fee. Insurance and maintenance are included. Porsche chose the four additional cities based on their support of the brand and the company’s expectation of interest.
Newbies to Brand
While the company’s biggest challenge with a subscription business is “making it ‘pencil’” financially, Zellmer said, there are long-term benefits. “If you engage 80% new people that have not engaged with your brand before, that’s certainly worth a lot,” he said.
Chris Bohlmann, a 27-year-old software engineer in Atlanta, has been using the service since March, after he bought a used Honda Accord that turned out to be a lemon. Bohlmann, who has an accident and a speeding ticket on his record, said he would already be spending about $1,000 a month if he leased a new car, versus the $2,000 he pays for Passport.
“I’m a man in my 20s. To get a brand-new car, you end up paying as much as the lease payment on insurance,” he said. “That’s what propelled me into this situation, where it’s all clear, upfront, no wheeling-and-dealing.”
Bohlmann, a Porsche fan since high school, has traded cars 10 times and driven five different models, including a yellow 911 Carrera 4S that turned heads everywhere he drove it.
Dealers’ Role
As part of the expansion, Porsche dealers will start running the subscription programs, instead of the manufacturer.
Jim Mooradian, general manager of Gaudin Porsche of Las Vegas, expects to see demand because the desert city is booming. There’s been an influx of new residents from California, and lots of business travelers come to work on a project for a few months with a transportation stipend from their employer.
“We’re not going into this with the understanding we’re going to make a lot of money with it,” Mooradian said. “We’re using it as a sales tool.”
Porsche’s new battery-electric car, the Taycan, will be added to subscription fleets next year as a way to help people get over their hang-ups about electric vehicles, Zellmer said. “Many people have these psychological barriers that we have to help them cross,” he said.
This article was provided by Bloomberg News.
