Do you know what most big businesses fear? Disruptive innovation (or disruption, for short)! That term signifies the invention of something that ripples through an entire niche (or several), making other products or services obsolete.
The disruption happened when the iPhone hit the market. From using our phones to talk we went to using them as pocket computers. Calling someone is even seen as “primitive” in many circles. Just imagine how other phone manufacturers at the time were in panic mode because of Apple’s move.
Uber did something similar and caused many “steady state” businesses to reconsider their strategies. Amazon also scores in that department both with bountiful digital books that outsell printed ones and with Audible – their audiobook platform. Think about how just a decade ago our way of consuming media was vastly different.
Why am I telling you all that though? Because I believe we are on the cusp of a new disruption event. Today we will look at what vehicle subscriptions are, whether they are worth it, and what they tell us about the future of car ownership. Even if this business strategy does not succeed, I believe it will still push us further away from traditional car buying. So hang tight, and join me in figuring out what vehicle subscriptions are all about!
What is the vehicle subscription model?
Currently, you have two long-term options for owning a car and a single short-term one. The first and most obvious is buying the car straight away. Many people do not have the money to do that though, do they? Which is why the second option is so popular – financing or leasing.
Many of our fellow Americans finance or lease their cars for a certain period. Whether that is three, five, or seven years, it does not matter – you are still paying for it in time. At the end of the period, it will be yours (in case of financing) or return the car to get a newer model ( in case of the lease). But during your finance or lease term, it kind of feels like you are paying car rent. That leads us to the short-term option, which is renting a car.
Obviously, rent-a-car services are expensive and not worth it over the long haul. But I already mentioned that financing and leasing are a bit like renting, with the exception that you may end up owning the car in the end. Here is where vehicle subscriptions come in. They sit somewhere between renting and financing by offering lower long-term rent pricing, without the rent period ever ending… Sort of.
It is true that you will not end up owning the vehicle even after years of subscription. However, most of the time that is the only major drawback to the service. Pricing can also be an issue for some, although that is somewhat arguable. It all depends on the particular subscription model because they can actually vary. Some may be more expensive than others, but on the other hand, they may come with a lot of perks. Let me explain!
What kinds of vehicle subscription services are there?
The whole idea came to fruition in 2014. At first, a start-up company saw that the market could use something like this, so they offered it. Could you guess which other companies rose up as its competitors? Car manufacturers!
To be honest, that is hardly surprising. Such companies have both the infrastructure and the resources to offer something like this. Plus it only serves to validate the whole vehicle subscription idea. However, the only car companies that currently offer more diverse subscription options are Ford and Volvo. Though when it comes to the subscription package, every company does whatever it wants.
Some subscription services cover everything from insurance and maintenance, to roadside assistance. On top of that, Book by Cadillac, for example, gives you the freedom to swap vehicles. That means you can ride around town in a comfy sedan while hopping an SUV for your trip in the country on the weekend. They also do not have minimum subscription periods, unlike Volvo, which has a 2-year minimum.
The interesting part is that most vehicle subscription services by car companies are usually in the luxury segment. Porsche, BMW, Mercedes, Lexus, and Jaguar have all jumped on the bandwagon. By offering luxury cars they can justify a slightly higher price than leasing while offering clients plenty of model options without having to think about their maintenance.
With that said, more affordable subscriptions have also hit the market. Ford and Volvo have some pretty cheap monthly subscriptions, and third-party companies also offer such. Their share is currently pretty small, but analysts are forecasting substantial growth. That may sound surprising to you. Who would give up their ownership for something like this? Frankly, it sounded weird to me at first too. Yet when I considered it for a bit, I saw why it made sense. Here we go!
Do you really own your car in the first place?
It is easy to fixate on ownership because we are living in a consumer society. Do not get me wrong, I find this perfectly fine. The problem comes when we fail to see that ownership is a really frail thing.
See, you may think you own something, but in the end, it almost always ends up in the garbage. It does not matter whether that is clothes, kitchen appliances, computers… or cars. It is not so much that you are paying for ownership, but rather for usage. Once the thing runs out of juice, you no longer need it, so to oblivion it goes.
Take a $50 shirt you have bought, for instance. It may go through two hundred wears before it tears. By doing the math it turns out you are “renting” it for $0.25 per wear. In reality, though, most people wear an item 7 to 10 times, before never looking at it ever again.
Of course, with cars, it is a bit different, because you use them every day. That being said, when you lease or finance them, you are essentially renting them. And many folks get a new car by the end of their lease period. So in a sense, you are on a constant subscription. Even if you sell your old vehicle, car value depreciation can be 60%. In light of all this, you can start to understand people who do not consider ownership to be such a big thing. To make it even clearer, I will summarize it for you below.
The pros and cons of vehicle subscriptions
The pros of vehicle subscriptions
- You do not have to commit to a single car over a long period
- Maintenance and insurance are often factored in the price
- When you consider all the costs of ownership, subscriptions are not unreasonably priced
- You do not have to worry about the car resale value
The cons of vehicle subscriptions
- You will never own the cars you are renting
- It is a bad option for car enthusiasts who like tweaking their vehicles
- Depending on your wants and needs a subscription service may get expensive
- Most current options are only for luxury brands and are limited to certain areas
You can weigh your options for yourself and decide whether subscribing to such a model is going to be worth it at some point. However, vehicle subscriptions are not the only alternative to ownership. Certain other options may prove to be much more desirable and make even subscriptions obsolete. Shall we have a look?
What other innovative solutions to car ownership are there?
For starters, there is a car sharing idea. Here a few people own one vehicle and use it together or on a schedule. This is not currently feasible, but with the advent of self-driving cars, it may turn out to be a decent option. Actually, the second alternative stems from it.
Option number two has also evolved into something similar to the first one, but not quite. Instead of sharing one car between a few people, you can actually allow your car to be a taxi when you do not use it. Some may say it is not unlike a self-driving Uber. Again, this can only be done if self-driving cars become a thing. Even if it does not sound too exciting now, this is the future in my opinion. Unfortunately, I do not think that it will be us, regular folks, who would own the vehicles.
I believe that most car manufacturers will storm the niche, much like the subscription model. They will offer self-driving taxi services with their vehicles.
If you do not believe this can happen, I can only point you to Uber and Porsche’s goal to create flying cars. Do you think they want to do it so that you can buy one? Of course not! They want to have versatile taxi services, which can take people everywhere in a much shorter period of time.
Of course, many of us enjoy having a car. Caring about a vehicle may even be a hobby – think about how many car enthusiasts there are. Then again, many of us do not really need a car per se. In fact, that may be the majority and we may not even realize it. In the end, owning cars will likely become a thing for collectors only. The rest of us will be just fine with mobility-as-a-service options like the ones already mentioned.
Is vehicle subscription the right model for you?
What do you think right now, can you see yourself jumping on a vehicle subscription? I would be glad to experiment with it, but something inside me is really drawn to that ownership idea.
Still, it may not really matter in the end. If the idea proves to be successful, it will take the market by storm, and ownership would become the niche thing. Think about the iPhone example again – you can still buy a regular cellphone, but most people will not do it ever again. Can it be that car ownership is heading in the same direction?