Online marketplace Collaborate (ASX:CL8) has announced a strategic investment from New Zealand-based Turners Automotive, as it pushes ahead establishing a footprint in the vehicle subscription business.

The announcement follows a busy month in June, when CL8 partnered with two car dealerships and signed a distribution deal with online marketplace i-Motor.

The moves were all in connection with CL8’s vision to build market share for its vehicle subscription business, Carly. The business was launched earlier this year in addition to Collaborate’s car rental platform, DriveMyCar.

Collaborate CEO Chris Noone says the auto industry is currently seeing “fundamental changes happening in consumer behaviour”.

He said the shift is being driven by younger demographics who are increasingly looking for flexible alternatives to buying and owning a car.

Shares in CL8 were unchanged in morning trade at one cent per share.

The deal

As part of the agreement, CL8 will issue a $1m share placement to Turners, which will in turn take a 12.13 per cent stake in the company.

The deal will be subject to shareholder agreement at Collaborate’s 2019 AGM. The company also plans to undertake a $2m entitlement offer, which will be partially underwritten, for existing retail shareholders.

The Turners group operates the largest used-car dealership network in New Zealand, with more than 3,500 cars for sale.

Collaborate said the investment would allow it to “leverage Turners’ industry experience, and accelerate the growth of Carly in the car subscription market in Australia”.

The two sides will also enter into an exclusivity agreement to negotiate the launch of the subscription platform in New Zealand.

To complete the placement, CL8 will issue 100 million shares to Turners at 1c per share.

The vision

Speaking with Stockhead, Noone said the growth of the vehicle subscription market was being driven by younger consumers who “value access to a vehicle more than they value access to ownership”.

He cited a recent report by market research firm JD Power, which showed well over 70 per cent of millennial respondents indicated they would consider a car subscription, compared to just 45 per cent for baby boomers.

Along with car dealerships, CL8 has also been in discussions with vehicle manufacturers who are positioning for the shift. And Noone said he’s noticed a distinct change among potential customers in 2019.

“Last year we were knocking on doors, this year people are knocking on our door,” he said.

The company’s dealership partners in the Australian market include Suttons Motors, a large player in the Sydney market.

“Because of our experience in the long-term car rental market, we have a considered view of the appropriate price points and margins and we’ll work with our partners to help calculate those answers,” Noone said.

To use the Carly subscription service, customers choose their vehicle online before going through the standard ID verification steps.

The minimum subscription is for one month and includes insurance, registration and servicing costs. Future revenues are derived from an ongoing monthly recurring model.

Carly has garnered engagement from industry partners in a relatively short space of time, having only launched in the Sydney market at the end of March.

Longer-term data from the existing DriveMyCar business revealed average rental periods are around 38 days. However, Noone said he expects vehicle subs “will be a lot longer than that”.

Ultimately, he said Carly was well positioned to fill a market niche created by the requirements of modern workers.

“If, over the next three years, you know exactly how your life is going to evolve in terms of your job and family life, you might be better off buying a car,” he told Stockhead.

“But if during that time you think things will change, in that case a vehicle subscription is definitely what you’re looking for.”

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