Mercedes-Benz USA will halt its two-year vehicle subscription pilot this summer, the latest automaker to walk away from the nascent business model.
Sales chief Adam Chamberlain described the service, launched in 2018, as a learning exercise to determine whether the alternative ownership model could attract new customers to the luxury brand. The executive said the pilot is ending on schedule.
"If the demand would have been unbelievable, then it could have gone further," Chamberlain told Automotive News last week. "But demand was just OK, so we kept it."
The Mercedes-Benz Collection offered subscribers access to about 30 model variants for a monthly fee, which included insurance, 24/7 roadside assistance and vehicle maintenance. Mercedes launched the program in Nashville and Philadelphia. Last summer, it was expanded to Atlanta, home to Mercedes' U.S. headquarters.
The service drew a few hundred customers, and Mercedes executives had expected it to turn a profit in the first 12 to 18 months. Chamberlain declined to comment on whether the service was ever profitable.
Automakers, dealership groups and third-party technology companies are experimenting with subscription programs in a nod to changing realities.
New technologies in retailing, coupled with the emergence of affordable and abundant ride-hailing and ride-sharing services, have put pressure on the historical vehicle-ownership model. Instead of consumers buying one vehicle that attempts to meet every driving need, subscription programs allow customers to pick the vehicle for the need — an SUV for when extended family is in town; a convertible for a weekend getaway; a compact for the downtown commute.
Subscription programs also help lure new customers to an auto brand and encourage existing ones to upgrade models.
"One of the challenges of our brand is that the average age of our buyers is 55 years," Chamberlain said. "We wanted to see if the program would help bring in younger buyers, and it certainly did."
About 80 percent of subscribers were new to the brand and were, on average, 10 years younger, Mercedes said.
"We've got a mountain of data now — it gives us some insights into how we can target that younger audience that clearly have a desire for the brand," Chamberlain said.
The pilot also validated the popularity of digital applications and platforms — subscribers signed up for the service and managed vehicle ordering and delivery through a smartphone app.
"It gave us real lessons into how we can attract customers with a more digitized sales process," Chamberlain said.
But automakers have had mixed success with vehicle subscriptions. Some programs have struggled to attract enough people who want to pay for the convenience. Others have found customers but struggled to turn a profit.
Book by Cadillac, a subscription service from General Motors, was put on hiatus in 2018 after few customers bit at the service's $1,800-per-month price. GM is now taking another crack at the program, testing a rebooted version in a dealer pilot.
Ford Motor Co. walked away from its vehicle subscription business last fall, following lackluster demand.
Porsche Cars North America, which launched a subscription program in Atlanta in 2017, is having more success. The sports car maker has expanded the program to Las Vegas, Phoenix, San Diego and Toronto.
"There is a market for shorter-term access to our brand," Porsche Cars North America CEO Klaus Zellmer said in May. "The flexibility and convenience of the program is appealing to a new audience."
Porsche is seeing enough demand to justify expansion of the program to additional U.S. cities this year, a spokesman said.
Subscription services are the "ultimate noncommittal car-ownership experience," said Jessica Caldwell, executive director of insights at Edmunds.
Pricey monthly plans, however, have kept these services from gaining mainstream adoption. Mercedes offered four membership tiers, with prices ranging from $1,095 to $3,595 a month.
"While consumers enjoy easy car ownership, there's a limit to how much they're willing to pay for it," Caldwell said.
The subscription model also faces an existential threat from a pandemic that is expected to linger for months.
"COVID-19 really will put the nail in the coffin as the idea of swapping cars is off-putting to most consumers and likely unadvisable by health officials in this environment," Caldwell noted.
In addition, the Mercedes pilot revealed a challenge that subscription programs grapple with — not enough vehicle swaps.
"At the start, customers enjoy changing the car," Chamberlain said. "After a certain period of time, that sort of gets old and they want to leave their car with their stuff in it."
The model doesn't work if vehicles aren't turned over frequently. Without vehicle churn, the automaker would have to stock large volumes of each model variant, making the program too expensive.
"You need utilization of the vehicles," Chamberlain said. "You've got a depreciating asset and it needs to be used."
To drive that utilization, vehicles in subscription programs should also be available for short-term rentals and used in loaner fleets, Chamberlain said.