Allure of car subscriptions looks too good to be true
New services may seem revolutionary, but they’re no panacea for vehicle ownership
If “Why buy when you can lease?” was yesterday’s mantra, then “Why lease when you can subscribe?” would seem to be our future.
In theory at least, it seems to makes sense. The experts say we are quickly becoming a subscription economy. Millennials, rejecting boomer consumerism, are seeking experiences, not possessions. Products are now being re-categorized as services. Indeed, according to Forbes, fully 10 per cent of our monthly expenditures are based on subscription-based models. There’s even a term for this fiscal revolution: Anything as a Service.
According to an upcoming Frost and Sullivan report, the Car as a Service subscription model will soon be revolutionizing the automotive marketplace, accounting for as much as 10 per cent of auto “sales” by 2025.
But will subscription services really be the panacea for car ownership? Or are the promises too good to be true? Here is Driving ’s evaluation.
THE PROS
At its very minimum, the monthly fee covers your car payment as well as insurance, plus maintenance costs. Even at their most rudimentary, subscription services offer a fixed monthly fee, eliminating the surprise of costly repairs, roadside breakdowns, etc. The allure of budgeting for one fixed fee is the primary attraction of the lower-end subscription services.
On the high end, it is the promise of switching cars on demand. Need a pickup to haul your boat to the cottage? Swap out your Ford Fusion for a burly F-150. Tired of your plain-Jane X5? Stop by your local BMW Access point and get your freak on in an M4.
Subscription services may also save the electric car. The ability to swap out a range-limited EV for a more road-trip-friendly hybrid or gas-fuelled car may be just the boost the stagnating electric revolution needs to go mainstream. Drive emissions-free locally and then, when the urge to explore strikes you, hit the road in a gaspowered automobile.
THE CONS
Probably the biggest pothole is the logistical nightmare that will be the customer demand for convenient car swapping. Certainly, the concept that you will be able to switch out cars every day is simply a pipe dream. Subscription services should not be confused with daily rentals.
The logistics of maintaining a fleet large enough to accommodate every car desired will become a nightmare. Predictive artificial intelligence will no doubt solve some problems.
No matter how you fudge the numbers, subscriptions are not advantageous to the consumer’s bottom line. For one thing, the second biggest purchase in most people’s lives — after your home — just became a permanent rental. For another, you don’t think the dealers/access points/ national providers that are offering these subscriptions are just going to pass along all those insurance, maintenance and roadside assistance programs at cost, do you?
Nope, there’ll be a markup each step along the way. By our calculations, the minimum markup of a traditional lease is around a $100 a month. With more fees to be included, one can expect that profit margin to increase.
And that’s for econocars. Move up into the rarefied world of premium automobiles and the price is simply staggering. BMW’s entry-level subscription is US$1,100 a month. Choosing between a 4 or 5 Series will cost US$1,400 every month. And if you want the full-zoot M-Tier package, you’re looking at US$2,700 a month.
That’s all well and good as long as the economy is humming along and interest rates are at historic lows. But when interest rates rise, all those millennials, who are always the early adopters of these types of services, will find themselves confronted with the choice between their houses and that lovely swappable car in the driveway. In the last economic downturn, leasing as a service tanked and took years to recover.
If — or when — that happens again, I suspect the best car in the world will be the beater that you own. You know, the one that is actually paid for.
Although there are no manufacturer car-by-subscription programs in Canada at the moment, Volvo will offer its Care program on S and V60 models in limited markets starting this fall. Ford, Jeep and Hyundai are piloting lower-cost programs in the U.S., while Land Rover, Audi, Mercedes-Benz, BMW, Cadillac, Lincoln and Lexus are testing premium services in the U.S. and/or Europe.