Can Car Subscriptions Become Mainstream?

The launch of car subscription schemes by several automakers in 2017 seemed to herald a new era of vehicle financing. While subscription models had been established for corporate fleets, they were a niche offering for consumers. Cadillac, Volvo, and Porsche were among pioneering OEMs offering subscription options to appeal to the growing consumer demographic with less attachment to vehicle ownership and familiarity with the subscription concept. 

What Is Different About Subscriptions?

Car leasing is the most popular method for new car purchases in many markets (such as the UK and the US) but subscriptions theoretically offer a simpler, all-inclusive, and flexible approach. In addition to minimal upfront costs, subscriptions provide a hassle-free online experience with the convenience of bundling in other costs of car ownership—maintenance, servicing, connected vehicle and mobility services, breakdown assistance, and often insurance—into a single monthly payment. They also provide the flexibility of short contracts (typically 3 months’ notice compared to 24-48 month leasing contracts) and the ability to swap cars during the subscription. This enables customers to switch cars depending on their needs, be it winter driving or top-down summer cruising.

Mixed Fortunes

Automakers capitalized on the subscription trend to become more engaged with their customers, while effectively upselling related vehicle services and increasing margins. However, they have had mixed fortunes. Book by Cadillac was the first OEM car subscription but was paused in 2018 to refresh the program. In January 2021, BMW and Audi terminated their subscription programs, with both automakers citing their programs were pilots. Ford and Mercedes also ceased their involvement in car subscriptions. 

The prime obstacle has been the value to the consumer; the benefits need to offset high monthly premiums, which can be double the cost of leasing. Some of the benefits are of questionable value. For example, new cars will be within warranty during the subscription period, maintenance costs are likely to be low (especially where mileage limitations apply), and insurance options are limited and unlikely to be competitive. 

OEMs have struggled to attract demand and learned tough lessons from running subscription programs, especially from operating costs related to fleet management, providing vehicle swapping benefits and the increased interaction required with customers. Furthermore, subscriptions are limited to a few cities and regions. However, while automakers such as Porsche and Volvo show signs of success and continue to offer their programs, providers such as ride-hailing operators, dealerships, and leasing and car rental companies show the most growth. They are set up for the challenges of fleet management and have the expertise and the footprint to expand the service. Startups such as Germany’s Cluno and Australian Carly also see potential and entered the mix.

Netflix for Cars?

Car subscriptions are often compared with Netflix, but there are significant differences between these services. Consumers who are already suffering from subscription fatigue will be wary of the monthly repayments for cars, which can be orders of magnitude higher than any other subscription. Joining fees, the time to acquire the vehicle, and notice periods or minimum terms result in substantially more friction for consumers to consider. 

Car subscriptions mainly have been limited to premium vehicles and described as toys for the rich; nevertheless, there is potential to become more mainstream by offering instantly available, non-premium, low mileage, used cars for lower monthly costs. While rental companies have already started offering this, automakers can also learn from pilot experiences and start to improve their conventional financing offerings to consumers.