Time for Innovation in Ownership
People love to own things but also want flexibility. With Covid19 affecting incomes, we may all have to think differently about owning houses and cars.
The biggest challenge for many people during recent furloughs, lockdowns and periods of underemployment has been matching a lower income to fixed expenditures. Some banks, auto brands and credit cards have offered payment holiday but going forward we may move to a more flexible working world where more innovative options are going to be required. So what are the possible avenues to new forms of ownership?
(1) Part-own and part-rent.
Owning a part of a house and letting another bear the risk for a chunk of the asset has become commonplace with houses. Whether it’s a government backed scheme scheme or a retirement home from a market leader like McCarthy & Stone, it works quite well with houses because when they go up in value everybody wins. To an extent, finance agreements with a right to buy the car at the end (so called bubble payment) work in the same for autos but with the caveat that cars fall in value with mileage so the discussion can be a bit more complicated. Still, these options give customers choices and as such are the most flexible way to own a new car. There is still plenty of room for innovation in this space. Covid Lockdowns have got us all using our cars a little less, so the immediate question is how can car brands give leasing owners some reward for the lower mileage and create a win-win out of the higher value on the lower mileage car?
(2) No obligation ownership
Volvo’s innovative Care-by-Volvo scheme is a kind of car ownership that many dream of. Have the car for as long as you want, hand it back with 3 months notice, or change to a different model. Starting at ￡559 it is not cheap, but then…it’s a Volvo. It is also an incredibly convenient way to completely remove the risk of getting ‘stuck’ with an asset you don’t want or don’t need - let’s say if you decide to work overseas for a while. In fact this isn’t entirely a kind of ownership. If it was a serviced apartment in the centre of the city we wouldn’t call it ownership when we can easily leave and walk away from the asset. However, with an automobile the customer has enjoyed full exclusive usage of the product for as long as they wanted it and therefore it feels a lot like real ownership. The risk for Volvo is that if customers hand back the car after just a couple of months then the depreciation will be much greater than the profit earned. So they’re hoping folks love the car and keep hold of it. Polestar (also owned by Geely) is offering something similar in the US and with the reviews of the new Polestar so positive right now they must feel confident.
Shared ownership
Buying a house between friends has become more common and the legal frameworks to do have become well established. It helps that a house is likely to go up in value over time, even if the shared owners use it and enjoy it. The shared ownership of a car is more problematic because they do down in value and the more one person uses it the faster the shared asset decreases in value. Ways have to be found to encourage good ownership, sharing costs as well as benefits. This area is still in its infancy as shown by the fact that the Audi Unite trial called it quits and there is no high profile brand jumping into this space. The real opportunity for innovation here is in creating shared ownership deals between people who already have shared interests, for example people who live in an apartment block together or people who live nearby, work for the same company and drive on the same commute. It’s amazing that most big car brands give a company car to hundreds of employees around the world and do very little to encourage car sharing. They should be experimenting to learn from their employees daily behaviour and find innovative solutions. There are also track enthusiasts who would love a sporty track car at reduced costs – made possible by sharing ownership.
Offset ownership
This can be done quite easily with a home that you put up on AirBnB for a few months if you want to go touring the world. The income received from renting out the asset offsets the cost of owning the asset (the mortgage in the case of a house) and could even be profitable, especially if you live somewhere less expensive for a while. Somewhere warm and sunny is appealing right now perhaps. This is also possible with automobiles and the DriveNow service from BMW has been pioneering in allowing people to lease a Mini in cities like Berlin and then offset the cost of ownerships by renting it into the BMW DriveNow car sharing scheme. It’s an attractive way to make car ownership more affordable and monetise the downtime when you’re not using the car yourself. However, from speaking to hundreds of premium car owners, I know people are very reluctant to share their prize possession even in a well-managed system. Personally, I wonder if there is a great B2B opportunity here. There are businesses like florists that deliver their product mostly during the day and pizza parlours that deliver mostly at night. Since the car depreciates over time it would make sense to share one and use it together in ‘offset’ time slots. Of course arguments may arise if one business drives more miles than the other but in a carefully structured agreement and with all the clever apps we have available on our mobile devices, there’s got to be a way to solve for that too.
We all hope to get back to something like normal soon, but I think we are going to want to have more flexibility going forward. Now is the time for people in finance and especially the auto industry to develop their most innovative offers ever.
References:
https://www.bbc.co.uk/newsbeat/article/39288622/tiny-london-house-sells-in-chelsea-for-700000---100000-more-than-expected
https://www.roadandtrack.com/new-cars/first-drives/a29697771/polestar-1-first-drive-review-photos/
https://www.carthrottle.com/post/polestars-subscription-rental-scheme-will-be-the-first-of-dozens/
https://www.volvocars.com/uk/care-by-volvo/
https://www.insidercarnews.com/audi-testing-out-car-sharing-ownership-program/