Are Automotive Subscription Services Here to Stay?

Auto subscription services aren’t exactly something new. The first known service was started in Honolulu in 2010, but we’ve come a long way since Rima Braden Autosource’s “Flexlease” program. 

Many major OEMs now offer subscription services. It’s no surprise that luxury brands like Porsche, Cadillac and Volvo were among early adopters in 2017, but Ford also launched Canvas at that time.

In 2021 there are eight manufacturers and a decent number of independent dealers offering a subscription service for vehicles. Some include insurance and maintenance. Others allow for unlimited “trades” during the subscription period. The options are various and endless as are the prices.

But the two important questions are: How does this affect dealers? And is this what consumers want long-term?

A new player, Canoo, isn’t even planning to sell its cars. The company will only give people access to its electric vehicles through its subscription service. This takes the subscription “sales” model to a whole new level.

That said, most OEMs are using this for supplemental profits and as a way to get more buyers interested in their brands, offering the option to purchase a vehicle at the end of the subscription, much like a lease. When a car returns, though, is it still a new car? Well, no. It’s been driven for longer than a test drive. Now it either enters a “subscription fleet,” akin to a rental fleet, or it’s sold as a used vehicle. We wonder for OEMs, are dealers making or losing money on these new car subscriptions?

How it affects traditional dealers isn’t totally certain at this point. Subscriptions have only been sporadically available in certain metros over the past 3 years, and some of them were put on hold for Covid-19 and other issues. Is it feasible for manufacturers to compete with independent dealers offering these services on used cars? It’s unclear, but probably not.

We do have to consider that the market is certainly headed in the direction of direct-to-consumer solutions, as we’ve seen with the rising use of the agency model. Consumers want options, and in this digital age, they want them at their fingertips. Online shopping is at an all-time high, and that goes for cars too.

Personalized experiences aren’t just appreciated, they’re expected. It doesn’t get more personalized than getting to choose your vehicle on a daily, weekly or monthly basis. Need an SUV for a road trip? Switch it out. Want a sports car for your date this weekend? Switch again. 

Convenience is also becoming more and more popular as an extension of “good customer service,” meaning that consumers don’t want to worry about taking care of tire rotations and keeping track of insurance themselves. Having someone else to handle that is easier, and people are willing to pay for it.

And according to Wards Auto, millennials are truly the driving force behind the switch to a subscription model as compared to traditional car-buying options. They’ve embraced the shared model of buying, as can be seen with the rise in ridesharing, Airbnb, and renting vs buying a home.

The problem is for OEMs, it’s not sustainable. Many abandoned their subscriptions even before Covid-19. Another option some are considering is an add-on package to vehicle purchases. It would give customers access to a fleet of vehicles to which they could subscribe to for specific needs - like if you need 4WD in the winter or know you need a van for soccer season. You’d still have your car, plus access to some others.

No matter how you look at these subscription options, this model is likely here to stay. Whether OEMs will continue to buy into it, how and to what extent are still up in the air. But if you have a used car store, it could be a viable option to reach a new segment that you normally wouldn’t target and bring in variable income. As the market shifts to a more instant, yet personalized approach, it can’t hurt to test the waters and get competitive in a new area.