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Sharing the Rights (and Responsibilities) of Ownership

In India, elephants were once the preferred form of transportation for royalty, and few people would ever dare to dream of owning such an animal. The hurdle was not simply the price of the elephant; it was the enormous cost of its care and feeding. The ruinous effect of elephant ownership were so well know to Thai kings that they would use the gift of a white elephant (sacred and therefore unable to work for its keep) as a punishment to those out of favor, an experience so financially painful we retain the expression for many such goods today. 

Fortunately, marketers are realizing that by selling portions of the rights to such an item, while retaining responsibility for its general upkeep, they can lighten the burden of ownership and significantly broaden demand. Such fractional ownership programs are finding increasing success among the money masses. While any significantly expensive item can be sold fractionally, from jet airplanes to jewelry (not a bad idea), four particular product categories - cars, boats, entertainment offerings, and vacation homes - demonstrate how this approach is managing to bring even the most extravagant of possessions into the hands of those who are merely well off. 

Planes, Yachts, and (Exotic) Automobiles

Fractional jet ownership, begun in the early 1960's, had become so popular by the mid-1990's that Warren Buffet's Berkshire Hathaway bought NetJets (now Executive Jet) in 1998 for nearly a billion dollars. Chicago based Exotic Car Share has recently begun applying the same concept to the most elite models of rare, antique, and luxury automobiles. Through a new equity ownership program, individuals can buy a one-fifth share in cars such as a Ferrari 360 Modena Spider, a Lamborghini Murcielago, or a Bentley Arnage T.

As founder and CEO George Kiebala told us, the extension of fractional ownership to cars was a logical step: "Until recently, you could fly on a fractionally owned jet to your fractionally owned beachfront timeshare, where you sailed on a fractionally owned yacht. What was the missing piece in this picture? The car."

Indeed, elite cars fall squarely into the category of desirable possessions that are highly burdensome to own. For every day spent cruising down sun-splashed roads, the typical Ferrari (particularly one owned by a Chicagoan) spends many more days sitting in a garage, where it racks up insurance, storage, and maintenance costs. Yet, although the car remains out of sight, it cannot remain out of mind. Like a fine thoroughbred, the garaged Ferrari needs constant exercise and care to stay in top condition. And to retain a sleek, shiny exterior (who daydreams about driving a dirty Ferrari?), the vehicle requires constant cleaning and buffing - more meticulous care than can be trusted to the local car wash. It is easy to see that few among the not-filthy-rich could have the time, money or patience to devote to such a possession.

That's where Exotic Car Share comes in. Each share owner receives seven weeks of drive time per year by making an up-front investment of $7,500 to $60,000, depending on the car model, and paying an annual maintenance fee of between $7,500 and $15,000. While this figure is certainly expensive, the fee is not much more than many affluent enthusiasts spend annually on their hobbies. Kiebala notes, in fact, that his customers come from every walk of life, occupation, and income range. What they all share, however, is a passion for cars.

What can make participation even more affordable in the long run is the residual value of the car. After three years, the owners can choose to keep the same car, upgrade it to a new model, or cash out and be reimbursed for the resale value. The ability to sell the vehicle means customers can recoup much, all, or even more than their initial investments. Kiebala notes that a Lamborghini purchased for $300,000 might be sold for $250,000 three years later - representing a drastically reduced depreciation cost of just $10,000 per owner, or roughly $3,300 per year - no worse than the family sedan. And should the car appreciate in value, as exotic ones often do, the owners stand to make money for the privilege of driving one.

Kiebala's experiences as a marketer offering fractional ownership deals have not always been easy. For example, Kiebala recounts that although the company was able to take advantage of the precedents set in other categories with regard to setting up enforceable terms and conditions of shared-ownership contracts, Exotic Car Share had a difficult time finding insurers that were comfortable with the concept: "We negotiated with insurance companies for a year and a half before finalizing their participation. It took a while because they had no precedent for insuring what we wanted to do."

He also noted that it was difficult initially to demonstrate to manufacturers and dealers that the benefits of broadening the customer base through his program would outweigh the potential downside of brand dilution caused be the increase in accessibility. (Dilution will be a concern for any marketers attempting this approach with a product or an offering that is not their own.) Dealers, for example, are not often the initial suppliers to such programs and must be convinced that the immediate sales opportunity (coupled with having a far greater pool of consumers who appreciate the benefits of their products from real firsthand experience) outweighs the risk of cannibalizing sales from customers who would have bought a whole one outright.

Exotic Car Share's program is far too new for us to declare a certain success. But Kiebala is optimistic: "Fifteen years ago, if someone were flying in a corporate jet, you thought that they must own it. Today, you assume instead that it is fractionally owned. There is an opportunity to achieve the same paradigm shift at the highest end of the automobile industry. I think that ten years from now, when people see a Lamborghini on the road, they will also assume that the driver has an equity share."

Despite the obvious challenges of the approach, fractional ownership programs in general continue to catch on. Today they exist in a variety of arenas, including even one of the most time-honored bastions of elite luxury: yachting. Yachts are so notoriously expensive that even avid owners refer to them as "a hole in the water I pour money into." But companies like World Yacht Federation in San Diego are making it possible for aspiring boaters to purchase a portion of a million-dollar yacht. For between $70,000 and $85,000 (plus $6,000 for maintenance and insurance annually), fifteen buyers get the use of the boat for three weeks each year - or twenty-one days of unencumbered smooth sailing.