California could shut down those popular car subscription services

California regulators have launched an investigation of a pioneering Volvo program that many industry observers have forecast could usher in major changes in the way Americans acquire new vehicles.

The program, named Care by Volvo, enables motorists to “subscribe” to one of several models. The concept is similar to a lease, but it bundles in insurance, maintenance and other fees.

But the Care program has run afoul of dealers in many places, with some in California complaining that it violates franchise and consumer protection laws. Their concerns have been taken up by the state’s Department of Motor Vehicles, which now will decide whether to fine the automaker, bar the program, or let it continue. Any rebuke by the DMV, industry observers warn, could threaten Volvo’s operations elsewhere, as well as the subscription services started by competitors such as Mercedes-Benz and Porsche.

“A lot of us thought that subscription programs were going to be the way to buy a car,” said Joe Phillippi, head of AutoTrends Consulting.

Still in their infancy, each subscription program has its own unique guidelines. With Care by Volvo, for example, motorists choose one of two different models at a flat price of around $750. Customers can change to another model in the second year.

The Porsche Passport program adds a twist, allowing subscribers to choose between different models, whenever they choose. During the week, for example, they might want to drive a Panamera sedan, switching to a 911 sports car, or a Cayenne SUV, over the weekend.

Automakers who have launched subscription services have tried to make it “just like subscribing to a magazine, and have hoped they could keep those buyers in the family forever,” said Phillippi. By comparison, it’s not unusual for a brand to lose half its customers when they trade in on a conventional retail purchase or lease.

While automakers are reluctant to reveal proprietary data, they claim customer satisfaction with subscription services has been high. But the California probe shows that dealers are far less pleased.

“Our dealers support innovation,” said Brian Maas, president of the California New Car Dealers Association, the group that challenged the Care by Volvo program. But, “This is just the first step in ensuring that manufacturers, specifically Volvo, stop going around their franchisee business partners in an attempt to retail vehicles directly. Franchise laws exist to protect dealers from this type of behavior,” Maas added following word that the California DMV would launch its probe.

The dealer group outlined a number of objections to the Volvo program, saying that the automaker is essentially using the program as a way to cut franchised dealers out of the sales process. They pointed to the 2018 Los Angeles Auto Show, where electronic banners at the Volvo stand declared, “Don’t Buy Our Cars,” and “Subscribe, Don’t Buy.”

The dealer group also contends that the Care program’s “payment packing” violates consumer protection laws. But the idea of a one-price package goes to the heart of not only the Volvo subscription service but the others that have been popping up over the last couple of years. Offering all-inclusive pricing is the major difference from leasing — and reflects industry studies showing many consumers want to skip all the traditional hassles of car buying.

For its part, Volvo said it is “committed to developing Care by Volvo in collaboration with our retailers to offer the flexibility of subscription side-by-side with traditional lease and financing.” A company statement added that, “We continue to improve the program, which will soon enable retailers to complete subscription purchases and provide instant vehicle delivery. Volvo Car USA believes the addition of a subscription option on the sales floor will benefit both customers and retailers.”

Volvo on Monday announced it will take steps to improve delivery of new vehicles the service offers. Currently, they are delivered from two depots on the East and West coasts. Going forward, many dealers will be able to handle deliver from their own lots. It is unclear if such a move might diminish franchisee concerns.

Spokesmen for other car companies offering subscription services declined to comment on the potential impact of the California probe. But Phillippi said competing manufacturers “are going to think twice” about the subscription concept if the California DMV rules against the Swedish carmaker.

The agency has up to six months to issue its decision.