Under the Hood: Will micro-leases follow in footsteps of subscription programs?

AutoNation appears to have taken a page from an outdated auto finance playbook with the launch of its latest offering. Last month, the vehicle retailer debuted AutoNation Mobility, an online shopping experience that provides six- and 12-month leases. But these micro-leases, as AutoNation calls them, resemble the vehicle subscription programs designed several years ago, most of which have closed due to lack of consumer interest. With AutoNation Mobility — available for now in Los Angeles, northern California and southern Florida — consumers choose their vehicle online from AutoNation’s inventory. They can filter their choices by color, make, fuel type and price, among other options. Next, they customize the lease to select the term and monthly mileage cap. After a credit check, customers sign the paperwork, make their first payment and pick up the keys at the designated AutoNation store. In theory, this micro-lease product makes sense for AutoNation, a retailer that sells both new and used vehicles. The rationale is that the lease’s low pricing would attract new-car buyers, whose payments would then offset much of the depreciation just in time for the vehicle to be resold as used to another car buyer. Through September, AutoNation’s new-car sales volume climbed 5.8% year over year to 179,798 vehicles, whereas its used-car sales volume dropped 10% YoY to 208,868. But three elements of AutoNation’s micro-lease program could dampen its popularity. The first is a small issue with a relatively easy fix. Though AutoNation touts this new offering as a “fully digital journey,” the car buyer must visit a dealership to pick up the vehicle. Seemingly, a truly digital experience would incorporate delivery of the vehicle to the customer’s residence, much like Amazon packages and grocery home-delivery services. A second factor that hearkens back to OEM subscription programs — and likely one of the primary reasons they fizzled — is the premise that consumers want to regularly swap vehicles. Nissan , for one, launched a subscription service in early 2020 that offered “unlimited switches, as often as a new vehicle each day,” for a monthly subscription rate plus a $495 activation fee. Nissan Switch, as the program was called, was effectively a glorified rental program aimed at attracting “those who want a sedan during the week and an SUV or sports car on the weekends,” the company said at the time. Over time, it became clear that consumers were uninterested in swapping out their cars daily — or even weekly or monthly. On the contrary, even consumers who previously got a new car every few years appear to be hanging onto their cars longer, with the average age of U.S. cars and light trucks at a record 12.5 years. High interest rates, steep pricing and limited selection are likely to blame for the mindset change. A more recent iteration of Nissan’s program, unveiled this year, centered on electric vehicles, with the option to subscribe to a new model every three to 24 months. The more frequent swapping option might work for EVs because consumers are looking for opportunities to test out different models without having to commit to a specific vehicle long term. But even this new program, called Nissan Subscription, includes a 24-month term, double the length of AutoNation’s longer micro-lease option. The third shortcoming of AutoNation’s micro-leases hinges on the fact that the program lacks insurance coverage. Historically, subscription programs entailed all-inclusive monthly fees that covered maintenance, roadside assistance and insurance. While AutoNation’s program includes maintenance and roadside assistance, it excludes insurance. For instance, a 2023 Ford F-150 XL model was available on AutoNation Mobility for $763 per month for a six-month term that includes 1,000 miles per month, plus a $2,400 initial payment and a $285 disposition fee. In other words, to drive the car for half a year would cost $7,263. The 12-month lease price is $858 per month, which translates to an annual cost of $12,981. Tack on another $2,000 for a year’s worth of insurance premiums, and the one-year cost to drive the vehicle would be about $15,000. While AutoNation launched its Mobility program to “reshape and revolutionize how people choose what they drive and how long they drive it moving forward,” experience has shown otherwise. With consumers already struggling with high monthly vehicle payments and difficult financial straits, perhaps programs for frequent vehicle swaps should be left to car rental companies, while OEMs and other retailers should stick with tried-and-true terms of at least two years.

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