Car Subscriptions Are The New Lease

The Next Car You Buy May Be Your Last
Download an app and join the car-of-the-month club with an all-inclusive deal of your dreams, insurance and maintenance included
  • By Jeff Beckham
  • |
  • Oct. 29, 2018
  • |

Car Subscriptions Are The New Lease

The Next Car You Buy May Be Your Last
Download an app and join the car-of-the-month club with an all-inclusive deal of your dreams, insurance and maintenance included
  • By Jeff Beckham
  • |
  • Oct. 29, 2018

Mike Raab needed a car. He was moving from Los Angeles to San Francisco for a new job, and his 12-year-old Ford Fusion wasn’t going to survive the trip.

When he tried to lease a car online, he got back vague boilerplate emails from car companies asking him to set up a phone call with a dealer, but no details on how much it would cost. Raab was frustrated. He had grown up in a world where businesses succeeded by being on-demand and easy to use, so why had the process of getting a car remained basically the same for decades?

That’s when Raab discovered Canvas, the month-to-month car subscription service owned by Ford. For a monthly fee, he could get a car plus insurance and routine maintenance. And he could cancel his subscription at any time and turn the car back in. Ten minutes later, Raab had picked out a new Ford Fusion, put in his credit card information, and selected a date for the car to be delivered to his apartment.

“It was a very turnkey process,” Raab said. “It was a night-and-day experience between the two.”

Canvas is one of a number of subscription programs from carmakers, dealerships, and startup companies that have launched in the past year. Some give you a chance to drive luxury models like Porsche and BMW, while others offer a selection of pre-owned cars across a range of brands. But they all are banking on the two things that attracted Raab: a user experience that eliminates all the hassles of car buying and a changing attitude toward ownership.

Who subscribes to a car?

There's still an early-adopter mindset around subscribing to a car. In a recent study, only one out of four people had even heard of car subscription services. And one out of 10 said they'd be open to subscribing instead of buying or leasing their next car. It turns out the type of people most likely to be open to car subscriptions are also those who are aware of and have used car-sharing services (like Car2Go and Zipcar). That group skews male and younger, with incomes between $60-80k. Finally, there's no consensus on subscribing from a carmaker or from a services that includes several brands, survey responders were split nearly evenly between the two.

Generations of Americans have celebrated buying a new car as a major life event. But it also comes with aggravations.

Generations of Americans have celebrated buying a new car as a major life event. But it also comes with aggravations. Negotiating a final price and avoiding unnecessary charges can become a battle of wills between buyer and seller. Then there’s the added expenses of registration, insurance, and eventual repairs, each with their own collection of headaches.

Car subscriptions aim to solve that problem. Either online or in an app, getting a car is now as easy as buying a phone. You sign up, pick out a vehicle, agree to terms, and arrange for delivery. In some cases, you can swap cars and try out a different model, perhaps choosing an SUV as your daily driver and a sports car for vacation.

It’s still early, though, so the offerings vary. Volvo’s Care by Volvo program is the most like a traditional lease, with a 24-month commitment and a mileage allowance, but they also are the only brand offering nationwide service. Other carmakers are taking a pilot program approach. Access by BMW is only in Nashville; Book by Cadillac is in New York, Los Angeles, and Dallas; and Porsche Passport is only in Atlanta.

The subscription approach favors an economic model that Ford’s Sheryl Connelly once described as “access over ownership.” We’ve seen it transform the way many people get music (Spotify), movies (Netflix), and even groceries (Blue Apron), so it’s not surprising that it’s made its way to car ownership.

Subscription apps, like Care by Volvo, allow you to customize nearly every aspect of your new car.

3-Year Totals: Leasing vs. Subscribing

Model
3-Year Lease Total
3-Year Subscription Cost
Difference
Cadillac Escalade
$48,932
$65,300
$16,368
BMW X6 M
$68,974
$97,739
$28,765
Mercedes-Benz SLC 300
$35,031
$39,915
$4,884
Volvo XC40
$25,489
$23,900
($1,589)
Porsche 718 Boxster
$49,481
$72,500
$23,019

Source: Edmunds

It’s not just young, tech-savvy people who are drawn to the subscription model. Corporate travelers on temporary assignment may not want to ship or move their car, while military personnel may not want to pay for a car that remains in the garage while they’re stationed overseas. And then there’s what Mobiliti CEO Chance Richie calls the “extended test drive”: driving a car for a month or two, then deciding whether it’s the one you want.

“If you’re not really ready to make a 30, 40, or 50 thousand dollar commitment based on a 20-minute test drive, (subscriptions) allow the dealer to offer that customer who’s maybe a little bit indecisive another option to go live with the car and then come back to purchase it when they’re ready,” Richie said.

While the benefits of subscribing are clear for certain types of customers, Richie points out that dealers can also benefit from a more efficient way to handle excess inventory and bring in monthly income rather than a one-time sale.

What's the Catch?

You're probably not going to read the Terms and Conditions, but you should know that your new car subscription comes with its share of limitations. On nearly every service, your pets are welcome to ride in the car, as long as they stay in a crate. No free-range pups and kitties. Also, there's no smoking allowed on most of the programs offered, and you may pay extra when you turn in the car if you've been puffing (or vaping) away. Can you customize the car? Nope. Drive outside of the country? Uh-uh. Can you add another driver? Yes, but ask the company first. And many subscriptions come with mileage limits, so you may have to keep an eye on the odometer. Finally, you can expect the companies to gather a fair amount of data on your driving behavior. This happens now on a lot of car insurance providers, but it's something to be aware of.


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Its not just young, tech-savvy people who are drawn to the subscription model.

While many people will remain tied to ownership as a way of feeling in control of the car they drive, others will see subscriptions as a way to free up another part of their life from a long-term financial commitment. And as self-driving vehicles become more a part of our lives, who knows how they might change how we own cars? As that time gets closer, however, the odds are that the next car you buy might be your last.

Which brings us back to Mike Raab, whose first Ford Fusion served him well for 12 years and whose new Fusion is six months into subscription duty. Is he sold on subscriptions?

“I think that at least for the next few months I’ll continue to use Canvas,” Raab said. “But I don’t see a year or two out still using the service, because hopefully there will be something — some sort of subscription car ride-sharing service or something like that — evolving.”

Carmakers: Car Subscription

 

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