Treat Your Vehicle Like Your Netflix Account With A Car Subscription

What is a car subscription? Instead of owning or leasing a car, imagine just paying a monthly fee and for gasoline. That’s it. No insurance, no maintenance, no long commitment. You can even swap out your car for a different one every few months.

Over the past year or so, the automotive industry has rolled out car subscription services at a feverish pace. Even Uber and Lyft are testing subscription programs that lock in a discounted price along frequent, set routes.

Turning away from car leasing and buying may seem like a seismic shift. But it’s actually in line with the larger trend among consumers. Americans already subscribe to Netflix (NFLX), Spotify (SPOT), Blue Apron (APRN) and Apple (AAPL). Why not General Motors (GM), Ford (F) and BMW (BMWYY)? Global automotive industry giants rebranding themselves as “mobility” companies see subscriptions as a way to turn customers from one-time buyers to sources of recurring revenue. And the car subscription model is gaining traction as the Netflix economy changes consumers’ expectations of everyday convenience.

“Life is easy,” said Vince Zappa, founder of Clutch Technologies, an Atlanta-based startup recently acquired by Cox Automotive. “You’re not locked into one car for the next six or seven years. It’s very freeing.”

Car Leasing Vs. Car Subscription
Of course, this kind of convenience isn’t cheap. Car info site Edmunds found the three-year cost to subscribe to a Cadillac Escalade was $65,300 — a premium of $16,368 over the three-year cost to lease.

But saving money isn’t the point, and subscribers wouldn’t drive the same car that long anyway. Depending on the service, you can flip vehicles every few months, month to month, or even without limits. Perhaps you prefer to drive a sedan for your daily commute and an SUV for a family road trip.

And the automotive industry can capture a steep premium without embarking on a risky venture that entails massive investments or changes to business models. Car subscriptions basically amount to really, really short-term car leasing.

Still, it’s early days. Jeremy Acevedo, manager of industry analysis at Edmunds, calls the car subscription efforts a proof of concept. However, he’s noticed “a lot of buy-in” from the automotive industry, which is looking for a future business model that doesn’t rely just on making and selling cars.

“Many automakers and dealers want to get into this space,” Acevedo said. “That’s what makes this so different from other trends in mobility.”

Automotive Industry Mobility Efforts
Car subscriptions are just one way America’s relationship with automobiles is transforming. With personal car ownership under siege, the automotive industry has raced to become a tech-savvy mobility provider.

Cadillac Escalade
Edmunds found the three-year cost to subscribe to a Cadillac Escalade was $65,300. (AP)
Efforts include the commuter shuttle service Chariot being bought by Ford, GM’s car-sharing unit Maven, and even bike-sharing via Ford’s Go Bike. Meanwhile, auto companies are racing to develop self-driving taxi services to rival Uber and Lyft.

But some people may still prefer to have a car in their driveway, even if they avoid car buying and car leasing. That’s where a car subscription fits in.

Most big names in the automotive industry now have a car subscription program. Cadillac has Book and there’s Porsche Passport, BMW Access, Mercedes-Benz Collection, Volvo Care and Ford Canvas. Fiat Chrysler’s (FCAU) Jeep division will also launch Wave. Dealer offerings include Park Place’s Select, Florida Fine Cars’ Ameridrive and Wyler’s FastLane. Third-party services include Clutch, Flexdrive, Fair, Carma and Mobiliti.

Despite the array of options, they largely work the same from the consumer’s perspective. You pick a car, pay the fee and get it delivered to you.

‘Great Appeal’ Seen For Car Subscription Services
Despite the breadth of companies in the car subscription market, it’s too early to call it a sure bet.

“These services have popped up in the last two to three years, and we’re still in the dark as to how many people are actually using them,” said Adela Spulber, an analyst at the Center for Automotive Research in Michigan. “There is still so much we don’t know about the viability of these things.”

Yet she believes car subscription use could become widespread as other new mobility trends hit potholes. Cities are cracking down on bike- and scooter-sharing startups. Also, the ease of reserving a car online and having it delivered could have “great appeal” across the country, she adds.

Clutch owner Cox Automotive sees demand rising. In a recent study, it found that 39% of consumers say access to mobility is necessary and owning a vehicle is not. That’s up 4 percentage points vs. 2015. Ten percent are open to subscribing instead of buying or leasing the next time they’re in the market.

To be sure, Cox has its own ambitions as a provider of fleet and mobility services. In addition to buying Clutch, it invested in car-sharing firms Ridecell and Getaround, partnered with Lyft, and created Flexdrive.

How Much Does A Car Subscription Cost?
Monthly subscriptions run from about $400 at Ford’s Canvas to $2,000 and up at Porsche’s Passport. A $1,000 monthly cost is at the lower end of the spectrum, according to Edmunds. By comparison, only 6% of current leases cost that much.

Porsche Passport
A subscription to Porsche Passport costs $2,000 a month and up. (Porsche)
Car subscriptions run nearly $2,000 and up at Cadillac, Mercedes-Benz and BMW, in addition to Porsche.

Book allows month-to-month, “white-glove exchange” of Cadillacs for an $1,800 monthly fee and $500 setup fee. It launched in New York City in January 2017 and expanded to Los Angeles and Dallas, citing “overwhelming demand.”

More affordable options are out there. Care by Volvo, the only nationwide service so far, starts at $600 per month.

Meanwhile, Ford’s Canvas can keep costs lower in part by offering used vehicles. Canvas customers can also lower costs by choosing a longer subscription or a package with fewer miles.

They can also add multiple drivers to an account, allowing costs to be split. Less-expensive cars carry lower monthly fees.

“We’re trying to create an alternative to what currently exists,” Canvas CEO Ned Ryan told IBD. “The auto market today has daily rentals and leasing or buying, with nothing in between.”

Should You Get A Car Subscription?
Those who want a car subscription tend to be either “life-event driven” or “lifestyle driven,” Ryan says. The former may have moved or changed jobs, and seek less-onerous contracts. The latter enjoy the simplicity and ease of subscriptions, and may use it as a path to ownership.

Roughly 30% of Canvas customers have never owned or leased a car, and 81% are new to Ford. To Ryan, that shows subscriptions attract “a very different audience” than the car buyers going to dealerships.

Smaller cars are most popular with Canvas’ 600-plus customers in San Francisco and Los Angeles. More than half use a sedan. Another 30% drive a crossover or small SUV like the Escape. The rest select a larger SUV, a Mustang or truck.

A typical Canvas customer is a mid-30s professional. James O’Connor, a 31-year-old San Francisco resident working in software sales, has subscribed to Canvas since the service launched a little more than a year ago.

The simplicity and “painless economics” of subscribing, more than flexibility or variety, appealed to him. In fact, he estimates that he now saves money vs. buying or leasing. He started off paying around $400 monthly and now pays $295 for a Ford Focus four-door hatchback.

“I don’t have to think about any hidden-surprise costs along the way,” he said, adding that he has yet to swap cars.

“It’s something everybody should look at before buying a car. Most people don’t really need a car all the time, at least the people that I know.”

At Clutch, founder Zappa said subscriptions are broadly popular, especially with empty nesters looking to simplify their lives. He dismisses the idea of subscriptions as a “millennial product.”

The average Clutch subscriber swaps vehicles more than twice a month. Most have driven at least five different types of vehicles.

“They just love the flexibility and variety,” Zappa said.

What Carmakers Get Out Of Subscriptions
It’s not just customers who value this new alternative to car leasing and buying.

Volvo
Volvo has a purchase option when the subscription ends. (Ariana Ruiz/ZUMA Press/Newscom)
Vehicle subscriptions come as the automotive industry faces headwinds. Some of the longest loan terms in history, rising interest rates and steep vehicle payments have combined to cool demand for autos.

So companies are looking for new revenue streams and new ways to keep buyers coming back.

By offering flexibility and variety, subscribing could keep shoppers more engaged, satisfied and loyal. That could mean greater opportunities to gather valuable data on car usage as well as to streamline portfolios and pipelines, says Edmunds’ Acevedo.

This model may be a way to lure customers into car leasing or buying, says Rachel Binder, a CB Insights analyst. Volvo has a purchase option when the subscription ends, akin to the traditional lease-to-buy model.

Not least, automakers and auto dealers may find in these services a home for the flood of off-lease cars and trucks returning to market. There are 4 million this year alone.

In fact, Canvas, a unit of Ford’s credit arm, already uses off-lease Ford vehicles for its fleet. Mobiliti, Fair and Carma also built their subscription fleets out of used or nearly new cars from local dealerships.

Automotive Industry Turf Wars
Automakers must figure out their own role alongside their dealer networks to leverage the car subscription opportunity.

Car dealerships could see car subscribers more than twice a month. vs once every three to four years for typical customers. (Stock.adobe.com)
Some companies work through dealers, others don’t. BMW and Daimler’s (DDAIF) Mercedes-Benz, for example, design and price their services using technology from Clutch. Then they turn subscriptions over to dealers to run.

Then there are third-party services like Clutch, which notes that dealers can engage more often with subscribers, while other customers show up once every three to four years.

Other signs hint at potential turf wars, if car subscription services really take off.

Underwriting teams must study risks from the blurring of lines between personal and commercial insurance. Auto retailers and auto finance companies must assess whether and how subscriptions fit with their traditional business.

For now, they’re all making nice with one another.

A trio of insurers, Assurant (AIZ), Liberty Mutual, and Chubb’s (CB) ESIS, handle insurance for several automaker and dealer programs. Ally Financial (ALLY) offers financing for dealers on Mobiliti’s platform.

Clutch’s Zappa believes the various interest groups will coexist under this model, ultimately empowering consumers.

“We built a service that people like,” he said. “That’s where I rest my hat every night.”

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