Car subscriptions not the deal they seem
FEES, LOGISTICS AND SIMPLE ECONOMICS ARE RED FLAGS
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 subscriptionbased models. There’s even a term for this fiscal revolution: Anything as a Service. Of course, like everything else in this digitally blessed world, we will all be having to learn a new acronym — XaaS — so we can shop with our offspring.
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. One can certainly see the allure: Promises of one convenient monthly fee covering all your automotive costs and, even more enticingly, the ability to switch from one vehicle to another on a moment’s whim.
But will subscription services really be the panacea for car ownership? Or are the promises too good to be true? Here is Driving.ca’s evaluation.
THE PROS
It’s every gearhead’s dream. 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. This flipping of cars is the same fantasy that makes being an auto journalist one of the most envied jobs on the planet.
Subscription services may also save the electric car. The ability to swap out a rangelimited EV for a more roadtrip-friendly hybrid or gasfuelled 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 convenient ICE-powered automobile. BMW initially offered this service — albeit limited in its scope — for anxious i3 owners. The solution to range anxiety, as it turns out, isn’t technological at all. It’s fiscal.
THE CONS
Probably the biggest pothole in this subscriptive future 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. More likely there will be a minimum holding period, whether it be a week or a month. Subscription services should not be confused with daily rental programs.
The logistics of maintaining a fleet large enough to accommodate every car desired will surely become a nightmare. Predictive artificial intelligence will no doubt solve some of these 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, as with everything in the automotive marketplace, there’ll be a markup each step along the way. By our calculations, the minimum markup of a traditional lease (compared with straight financing) 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. Porsche is offering similarly priced high-end packages.
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. Meanwhile, Ford, Jeep and Hyundai are piloting lower-cost programs in the United States, while Land Rover, Audi, MercedesBenz, BMW, Cadillac, Lincoln and Lexus are testing premium services in the U.S. and/or Europe. When contacted by Driving.ca, most said they are taking a waitand-see approach on how these programs fare in larger markets.