Mar 16 2021
Vehicle subscription services started to surface in 2017 and are now available through a few manufacturers, some dealers, and several third parties including startups and vehicle rental companies. Given the diversity of businesses and level of variability in their business models, understanding how vehicle subscription services work requires a good deal of research.
Whether you are consumer looking into the benefits of a vehicle subscription service, or an automotive professional, like myself, trying to better under this topic, answers to the questions below will be a great place to start.
While most vehicle subscription services function similarly to rentals with options to keep the vehicle for as long or short as you want and the ability to switch vehicles frequently, there are several differences. Rentals are usually a daily or weekly rate which can add up. Long term rentals may end up costing more than a subscription service, depending on the duration of the rental, but could also be cheaper due to the one-time startup fee ($500 on average) associated with most subscription services.
The major difference between vehicle rentals (esp. long-term rentals) and vehicle subscription services is that subscription services typically package insurance, regular maintenance, and roadside assistance into the monthly rate, while insurance and any additional services are purchased as add-ons with rentals. Another thing to keep in mind is that most vehicle subscription services have mileage limitations, while most of the major rental companies offer unlimited mileage with their long-term rentals.
While the majority of vehicle subscription services are quite different from vehicle leases, and actually more similarly aligned with long-term rentals, there are a couple of programs that have some similar characteristics to vehicle leases:
Care by Volvo is like a lease in that it requires a 2-year commitment and provides their subscribers with new vehicles. However, unlike vehicle leases, Volvo subscribers can switch vehicles after the cancellation period (4 months) without an early termination charge. Additionally, with Care by Volvo, the down payment range is based on the vehicle model ($600-875). New car leases typically have a much higher down payment (up to $5000). Similar to a lease, Care by Volvo subscribers can purchase their vehicle if they decide to.
Fair markets themselves as a pre-owned leasing company and requires a small down payment (median down payment $1299) for each Fair vehicle. However, unlike a lease, you are permitted to switch the vehicles frequently – though not very cost effectively – and can return the vehicle whenever. Fair states in one of their blog articles that 7+ months is the sweet spot for a cost-effective vehicle subscription, where the down payment will be offset by the low monthly rate ($345 on average). One of the biggest differentiators between Fair’s “pre-owned leases” and traditional leases (other than new vs. used) is that their subscribers do not have the option to buy at any point, though they can keep the vehicle for as long as they’d like.
While monthly payments are typically higher for vehicle subscription services than new car leases, they also include insurance and some other perks (such as maintenance and, roadside assistance) rolled into the monthly payment.
As you may have suspected, the target audience for vehicle subscription services are younger people who are accustomed to subscription services and may not have purchased a vehicle otherwise due to long-term commitment. Fair says their average customer is 31 years old with clean credit.
Some other consumers that make great candidates for subscription services are drivers with changing vehicle needs, a short-term need, or even car enthusiasts who want to drive as many luxury vehicles as possible and have the financial resources to do so.
Manufacturer-run subscription services are some of the only vehicle subscription services that will offer brand new vehicles. Although, according to an Edmunds article, even though you may be driving a next-to-new or current model year with manufacturer subscription services, Care by Volvo is the only program where you are guaranteed to be the first driver – which is largely why they require a 2-year commitment.
Many other subscription services involve the dealer in one way or another. Some third-party subscription services purchase off-lease or used vehicles (Fair). Subscription platforms, like Dealerpointe and Clutch, work with dealer partners to provide their services. Finally, some manufacturers leverage dealers to facilitate some of the logistics.
In many ways, vehicle subscription services can help dealers by moving more used inventory with a new market of customers who aren’t willing to commit to purchasing or leasing a vehicle. As mentioned previously, many third-party companies, like Fair, depend on obtaining their vehicles from dealers. Platforms like Dealerpointe and Clutch also depend on dealers as the source of vehicle inventory.
The owner of Mobiliti (since acquired by Dealerpointe), Chance Richie, envisioned his company serving as an extended test drive for some customers. In an Automotive News article, Richie stated that “Whenever somebody enters a dealership and is not quite ready to buy or lease, this gives the dealer another option to offer to that customer, to entice them to take the vehicle home and ultimately buy or lease that vehicle.”
Alternatively, some vehicle subscription services are competing with dealership vehicle sales. For example, while dealers are involved with most manufacturer-run subscription services to a degree, the manufacturers are still working directly with consumers and ultimately taking away sales from the dealer.
The rental-based subscription services, like Hertz My Car and Subscribe with Enterprise, are also competing with dealers, as they offer an alternative to vehicle leasing/buying but do not rely on dealers for obtaining their fleet.
Routine maintenance and roadside services are typically included with most vehicle subscription services; however, the inclusion of vehicle repairs varies quite a bit. In many cases, repairs are not highlighted in the marketing descriptions.
For vehicle subscription services offering new/relatively new vehicles, such as the manufacturer-run subscription services, most repairs will be covered under the manufacturer warranty. For third party vehicle subscription services dealing with used vehicles, they may offer a limited warranty which covers certain vehicle repairs (ex. Fair). This will be unique to each company and will likely include a deductible.
Not sure which vehicle maintenance should be scheduled and when? Each vehicle’s manual includes this information. OEM service schedule data is also available through a vehicle data provider and may be integrated into the vehicle subscription app.
Many manufacturers have recently shut down their car subscription services, some just temporarily. A major issue they face is limited flexibility to expand due to dealer laws. For example, the California New Car Dealers Association (CNCDA) asked Volvo to stop their Care by Volvo (CBV) program, which resulted in Care by Volvo eventually withdrawing from California.
In a recent article written by Will Kaufman at Edmunds, he says “how subscription services will operate within the confines of dealer networks is an open question, but as things stand these services can’t operate without dealers.”
Another major issue, particularly for manufacturer-run subscription services, are their high premiums to compensate for the depreciation in value. While all subscription services must consider vehicle depreciation, manufacturers are taking the biggest hit in supplying new/next-to-new vehicles for short-term use. This is not as big of a concern for third party subscription services that are primarily dealing with used inventory. Here’s an interesting article about the effects of depreciation on vehicle subscription services.
One of the biggest hinderances of vehicle subscription becoming more widely adopted is a lack of awareness and resistance to change. “These services require more outreach and need to overcome the conventional wisdom that you’re better off purchasing a car outright,” Kaufman states. “There’s not currently much investment in educating consumers either ― these subscription services aren’t widely advertised on dealership or manufacturer websites.” And though purchasing/leasing puts most people in debt, they want a vehicle they can call their own.
As evident from the level of detail in this article, each vehicle subscription service has its own nuances. While some businesses have found success in this business model, there are still many hurdles that will need to be addressed for vehicle subscription services to become more widely used among the target audience.
If you manage a subscription fleet and have a need for vehicle data and VIN decoding solutions to help manage your inventory, we’d be happy to discuss how DataOne can help!