Subscription service provider Flexdrive uses third-party telematics devices installed on vehicles to surmount two of the biggest costs for its dealership partners: depreciation and insurance.
Those two costs make up more than 40 percent of overall expenses for the operator of a subscription service, according to Flexdrive, of suburban Atlanta.
Flexdrive trims insurance rates with pay-as-you-go policies akin to those offered by Progressive and other insurers, where the rates vary according to the driver’s behavior such as speed, braking and location as tracked by the onboard devices.
Managing depreciation costs is a newer twist, using software to compare vehicle age and wear and tear against used-vehicle prices.
Zappa: Monetize inventory on lot
Flexdrive data strategists attempt to predict depreciation curves of vehicle inventory in a particular market and determine when the cost becomes too steep to continue service. Flexdrive then notifies the dealership to urge the subscriber to switch the vehicle, generally a used one, out for another, typically by offering incentives.
Clutch Technologies, of Atlanta, which provides the subscription-service platform for automaker programs such as those offered by Porsche and Mercedes-Benz, also sees depreciation curves as a balancing act.
Clutch President Vince Zappa told Automotive News that smart dealers will leverage subscription services to smooth vehicle depreciation over time.
“We help dealers and our customers monetize inventory sitting on their lots that’s already depreciating,” Zappa said. “As the car is being used, the mileage is being kept up with, and dealers are actually able to pull cars in and out of subscription as they see fit.”
The onboard devices can be used in a number of ways, said Drew Heckman, Flexdrive’s head of strategy, but participating dealerships mostly tap them for vehicle location, diagnostics and some remote enablements. “When you put a telematics device in the car, you’re increasing security for the asset but also using it to increase value for the consumer and the dealer,” he said.
Remote-start capabilities and location tracking appeal to a consumer interested in tethering the technology to a mobile device, while dealers appreciate the ability to lock down a vehicle if it incurs damage or if a subscriber is delinquent on payments.
Heckman: Boost for security, value
Personal car insurance policies typically are underwritten for two main factors: the profile of the driver and the vehicle that driver owns. But that doesn’t work for subscription services, where a subscriber’s flat monthly fee includes insurance. That appeals to consumers but can be a headache for dealerships and others running subscription services because they need to offer insurance on all vehicles in the fleet, whether they are on the road or not.
“The question becomes, how can we eliminate these costs when the car’s not actually generating revenue?” Heckman said.
Again, the onboard device can help. Because the device can prove that a vehicle isn’t currently in use, those vehicles waiting to be swapped into subscription service don’t incur the same insurance costs as those on the road.
While most dealers using Flexdrive charge customers a flat fee to use their vehicles, Heckman believes that subscription service insurance would work best as a usage-based premium with a cap. For the same vehicle, a subscriber who drives farther could pay a higher premium.
“There is a high probability that in the future, cost per mile is as relevant, probably more relevant, than cost per time,” Heckman said.
Assurant Inc., of New York, underwrites Flexdrive’s vehicle insurance. Kunal Malhotra, vice president of innovation for Assurant’s Global Specialty business unit, said that because Flexdrive prescreens its members, rejecting those with bad driving records, the insurance model for the service leaves the driver out of the equation, focusing only on what happens to the vehicle.
The insurance company is not privy to all of the data the devices collect, Malhotra said. Flexdrive reports only applicable vehicle usage data to Assurant. “We build a program that’s based on the information,” Malhotra said. “An overwhelming amount of data stays with Flexdrive.”
Flexdrive is not unique in using these technologies.
Heckman believes the majority of subscription providers are embedding some sort of technology into their fleets. Flexdrive obtains the devices and technologies from multiple suppliers.