Environmentally-friendly vehicles are one of the elements leading the way, but an even bigger one is the under-40 age demographic looking for flexibility to find a plan that matches their change in lifestyles and work arrangements brought about by the pandemic.
Putting the squeeze on ownership and leasing are vehicle subscriptions, a model that meets many of those under-40 needs: convenience and the flexibility to lock in short-term commitments of three to 18 months without the drag of a monthly payment or paying for pricier short-term rentals.
The players in the car subscription world contend that one place car subscriptions make a lot of sense is when someone is moving to a new city.
“For those settling down, traditional vehicle ownership or lease makes a great deal of sense,” Erik Zahnlecker, director of New Products at Kyte, told ConsumerAffairs. “For the traveler, digital nomad, or young professional on the go, committing long-term to a vehicle will make it challenging to choose a new path on a whim.”
Price comparisons and bonus pluses
When ConsumerAffairs compared renting and subscribing to a Nissan Versa, or similar, in Chicago for a three-month period, the subscription option certainly makes its point. Outside of the regular taxes and fees, going the subscription route with Kyte would cost $2,365.09 vs. $3,789.59 for renting the same vehicle at Enterprise.
Besides bridging the gap between renting and leasing a vehicle, a subscription might also offer frequent vehicle swaps and avoid additional vehicle expenses like insurance and maintenance – items the service provider is responsible for. In other words, everything is included except the price of gas.
But anyone looking at a subscription over buying, leasing, or renting should consider the minutiae in the pluses and minuses of all those options, analysts suggest.
In breaking down the differences, Straits Research said in its recent car subscription market report that a subscription is more expensive than leasing or buying a vehicle in the long term.
“Car subscription options are coupled with monthly billing cycles and mileage restrictions. The monthly payment for a car subscription is more expensive than leasing or owning a vehicle for more than two years,” the analysts said.
“In addition, most service providers impose a mileage cap on vehicles for a given period -- exceeding this restriction incurs additional fees for the end-user. When leasing or owning a vehicle, these additional expenses and monthly service fees are negligible. In the coming years, the high cost of the subscription model is projected to impede the demand for car subscriptions.”
A 'disruptive' force – or is it?
Car subscriptions are still in the incubator, but auto industry analysts say the market is already proving its value in Europe, growing at a clip of 23% and they think the U.S. will eclipse that growth with a CAGR (compound annual growth rate) of 33.5% between now and 2030.
“The concept of subscription is disruptive for the automotive industry, especially for dealers who have generally seen it as a direct threat,” Levon L. Galstyan, a CPA and consumer finance expert with Oak View Law Group, told ConsumerAffairs.
“It is also likely to grow over the next 10 years. Once autonomous vehicles are widely available, legacy businesses may find it challenging to achieve the aim of seamless, one-stop transportation ecosystems—unless they jump in with their own solutions.”
Karl Brauer of ISeeCars.com says the trick for Kyte and its subscription contemporaries is to actually make money by selling car subscriptions – “Which from what I can tell nobody has actually accomplished,” he told ConsumerAffairs.
“When you look at what car rental rates have gone to in recent months it’s hard to imagine a subscription service that makes economic sense for both consumers and vendors. But maybe someone will crack the code on how to make it a profitable business case.”