18 Subscription Programs That Are Changing Auto Finance
Subscription programs that allow for more flexible vehicle ownership could wind up being a bust, but if investments from just about every major OEM on the market, a handful of startups, and numerous dealerships are any indication, this is a fad that will be around for some time to come.
What “flexible ownership” means differs drastically for programs. Some offer total flexibility to swap in and out of cars whenever the consumer wants, but it comes at a hefty price. Others offer used vehicles and fewer amenities for a lower price. Some OEMs have traditional lease programs that add-on insurance and maintenance, while other dealerships are bypassing the manufacturers altogether.
It’s hard to tell if this trend will grow to 30% or more of the market like traditional leasing has, or if consumers will come to see it as a glorified rental.
Grayson Brulte, President of consulting firm Brulte & Co., told Auto Finance News back in January that these programs are largely going to serve as the testing grounds and starting point for a world in which fleets are 100% autonomous and the need for car ownership is largely diminished.
“On a traditional three-year lease, [the industry] knows how the system works, but if you’re on a one-month, two-month, three-month lease or you’re constantly swapping out vehicles, [the industry] has to learn,” Brulte said. “You’ll see interesting pilots pop up in cities around the country and you’ll know it’s working when they announce, ‘We’ve added two more cities to the platform.’”
Four Luxury OEM Programs Driving Subscriptions
This is the top end of the market where the trend started to take off at the beginning of 2017 with the introduction of General Motors’ Book by Cadillac program.
All of these programs allow consumers to swap cars within the OEM’s brand at will and do so through a white-glove concierge service, which delivers the car to the consumer’s home or desired location.
That level of service comes at a steep price. Services in this category such as Book by Cadillac, Porsche Passport, and Mercedes-Benz Collection all start at or near $1,600 per month and can range as high as $3,000 per month. Access by BMW recently cut prices to $1,100 per month due to consumer demand.
Toyota’s forthcoming Lexus program and Fiat Chrysler Automobiles’ Jeep subscription program could fall into this category as well but pricing details have not been revealed yet. The Luxus program is scheduled to launch during the holiday season 2018 with Jeep coming in 2019. Carpe by Jaguar Land Rover also launched in June but it’s exclusive to the UK with no plans to expand into the U.S.
Edmunds found that consumers in these programs would pay on average a $27,124 premium for these subscriptions versus a traditional three-year lease. However, they also provide the greatest amenities and service for the price.
Finding a Fair Price
The car subscription startup named Fair came onto the scene last year in a big way by adding $1 billion in capital from a group of investment banks in October 2017 and then buying Uber’s Xchange Leasing program to become the ridesharing company’s exclusive leasing partner.
Fair offers vehicles on its app from as low as $150 and $300 per month but can also get up to $1,000 or more depending on the vehicle.
Chief Executive Scott Painter explained to AFN late last year that the company is able to offer this lower price because it only offers used vehicles and focuses on affordability based on how much typical consumers spend on car payments and mobility combined as a percentage of their income.
“In our model, we must understand what you can afford and we constrain your shopping experience to that because we don’t’ show selling prices or cap costs on cars. Everything is shown in the form of a monthly payment and we don’t show you cars you can’t afford,” Painter said. “Everything we do at the beginning of the app experience from a data collection point of view is getting to the bottom of that question — how much can you afford? And it turns out everyone can afford something. You could be a single mom, working two jobs and you can only afford $150 to $300 a month. We’ll show you a ton of cars in that price range.”
Fair is expanding rapidly as it seeks to meet the demand of Uber drivers nationwide seeking temporary vehicles. Fair also addressed how it will deal with the used vehicles coming out of the subscription program with a partnership with Ally Financial and the SmartAuction platform. For more information on that partnership, click here.
Dealership Programs Turn to Three Tech Providers
If dealerships have the fleet financing arrangements from their bank partners, they don’t need the OEMs to offer a subscription program. However, most still look to partner with one of three technology providers offering a consumer interface and inventory system.
Cox Automotive’s Clutch Technologies, Flexdrive, and Mobiliti are the main players in this space selling the technology to dealerships. Cars usually start at around $1,000 per month, include maintenance and insurance but won’t be delivered to a consumer’s home like the luxury OEM models do. In this way, dealerships still become the mobility hubs for an individual’s city and increase the consumer loyalty.
“A vehicle subscription service is for people who want a car but aren’t ready for ownership,” Mobiliti CEO and Co-Founder Chance Richie told AFN in May. “It’s similar to a lease, but without the things consumers dislike most about leasing, including long-term contracts and upfront costs.”
New OEM Lease Offerings
If the previous programs listed above are following the Netflix model of offering a monthly price for full access, there are other OEMs offering something closer to an annual Amazon Prime membership.
Hyundai Capital America and Volvo Cars are the primary players in this category.
Hyundai started with a pilot in California called Ioniq Unlimited+, which offers an electric vehicle for $275 per month, a 36-month term, no down payment, unlimited miles, and free charging. This year, Honda expanded to Ohio offering conventional combustion engine cars for the same price and terms as the Ioniq
Unlimited+ program but bundles maintenance and insurance instead.
Care by Volvo is a subscription program for the OEMs XC40 compact crossover but offers a shorter term — 24 months with the ability to swap to the newer model after a year — starting at $600 per month. Bank of America is the lender behind the program.
“It’s a more attractive price for the consumer,” Mark Abbasi, Hyundai’s vice president of product development, told AFN last month. “If you look at month-to-month programs it’s quite expensive — it’s a premium price and we wanted to come out with something that’s more affordable and provides more value to the consumer. That three-year term helps you get there.”
There’s also a small San Francisco-based startup dubbed Less, which offers consumers three cars during a 36-month contract starting at $550 per month.
Ford Launched Two Used-Car Subscription Models
Used cars are much easier to price because the initial depreciation of driving off the lot for the first time is already factored, Fair’s Painter explained to AFN. The industry is also flush with low-mileage used cars right now coming off record-high lease volume, which makes subscription programs a good way for companies to use up some of that volume, he added.
Ford Motors took the used-vehicle route with the launch of Canvas in May 2017 offering users access a number of off-lease Ford vehicles starting at $329 per month, according to the Canvas website. Ford looks to take a similar approach with its upcoming Lincoln subscription service, which will offer more luxury features on off-lease Lincoln vehicles.
“Our biggest challenge was simply seeing how customers responded to and used the product, and using that feedback to help refine it and add features that would better their experience,” a company spokesperson told AFN earlier this year. “For example, we found that features like adding a second driver are hugely popular with our customers.”
Two Programs Looking to Make a Splash
Two companies are seeking to break into the car subscription space but either hasn’t found their niche yet or are seeking OEM partners to bring them to the next level.
Los Angeles- based Borrow is a car subscription service that rebranded from PrazoNow in November 2017. The company only offers electric vehicles starting at $499/ month on a three-month term. Likewise, Carma Car is part of the Techstars Mobility accelerator and is seeking expansion for its program starting at $400 per month for sedans such as the Ford Focus, Honda Accord, and Chevy Cruze in the base package.
The Complete List
Subscription Services’ Starting Monthly Price
- Access By BMW: $1,100
- Book by Cadillac: $1,800
- Borrow: $499
- Canvas: $329
- Care by Volvo: $600
- Carma Car: $399
- Carpe by Jaguar Land Rover: $1,057
- Clutch Technologies: $850
- Fair: $150
- FCA’s Jeep Subscription: TBD
- Flexdrive: $750 (on average)
- Hyundai Plus/ Ioniq Unlimited+: $275
- Less: $550
- Lexus: TBD
- Lincoln: $625
- Mercedes-Benz: $1,600
- Mobiliti: $1,000
- Porsche Passport: $2,000
