Why Are Car Companies Racing Toward the Subscription Model?
In the past few years, car companies have introduced subscription models to customers that allow more flexibility than leases and loans. There is also another type of subscription model that gives customers access to specific services after buying the vehicle.
But why are car companies moving towards a subscription model? And is it feasible in the long run? Let’s dig deeper to find out.
What Is a Car Subscription?
A subscription model is tailored for customers to pay monthly or annual fees to access different vehicles offered by the same company. This means that if you’ve signed up for a car subscription service, you can switch vehicles at your convenience, depending on your package agreement.
The other type of car subscription involves paying a recurring fee to unlock specific features or services the car manufacturer provides after you’ve bought the vehicle. For instance, as reported byBloomberg, BMW introduced an $18 monthly subscription to unlock heated seats.
Similarly, if you want to unlock all the features in Tesla’s self-driving software, which brings your Tesla close tolevel 3 driving automation, you could pay a monthly subscription of $99 or $199, depending on your package.
What Is the Difference Between Car Subscription and Leasing?
Both car subscription and leasing agreements don’t give you ownership of the vehicle, but they’re structured differently. If you’ve signed a lease agreement, you’re committed to paying a fee to access a specific vehicle within a certain time frame—most car leases have a minimum period of 36 months.
After the leasing agreement expires, you return the vehicle to the dealership or settle to buy it. You could get penalized for early termination if you want to replace your car before the lease expires.
On the other hand, you pay an annual fee for a car subscription, but it doesn’t commit you to a single vehicle—you’re able to change the car on short notice. Car subscriptions are also easier to opt out of than lease agreements since you’re usually not given brand-new vehicles but used cars not older than three years in most cases.
Besides that, most car subscription packages don’t require extra pay to cover insurance and maintenance costs like you would on a lease agreement. Most car subscription packages also offer roadside assistance, but you’re expected to pay for fuel.
Despite the flexibility of car subscription models, leasing is often a cheaper alternative. According toTop Speed, the subscription fee to access most Porsche models is almost twice as expensive as the leasing cost—that’s if you don’t add the insurance and maintenance cost.
Taking that into account, car subscription packages are often more expensive because you have access to more car models from the same car brand and the package fee includes insurance and maintenance—but you’re limited with a leasing contract.
Alternatively, you could consider renting a car to save money. you’re able to easily get one at your nearby rental company, or you can check out your options with some of thebest car rental appsso you can have more options.
Why Car Manufacturers Are Offering Subscriptions
Most car manufacturers are moving towards a subscription model because it generates more revenue. According toBusiness Insider, major automakers such as GM, Ford, and Stellantis have projected annual revenue of over $20 billion from monthly subscriptions by 2030. The potential is vast and could double most automakers' revenue over the next decade.
However, most manufacturers target subscriptions through service options that improve the driving experience. More succinctly, car manufacturers offer features such as driver assistance, cellular data connection, vehicle diagnostics tools, and satellite radio through microtransactions. They could even charge you to activateautomated vehicle technologiesthat improve safety.
Another reason why automakers are offering subscriptions is that some of those software technologies like driver assistant need to be regularly maintained—and manufacturers provide over-the-air updates. Besides that, the subscription model makes it more affordable for drivers to access extra features instead of asking them to fork over extra cash to get a more expensive variant.
On the other hand, some manufacturers have a subscription package for customers who want to drive different car models without buying them.
Car Manufacturers That Offer Subscription
Some of the manufacturers that offer a subscription model that gives customers access to different vehicles under the same brand include:
However, most car subscription models offered by car manufacturers are only available in select locations. If the car subscription you want is unavailable in your location, you can consider third-party companies like AAA car subscription, Subscribe with Enterprise, Sixt+, Hertz My Car, Fair, and Borrow that offer car subscription packages. Alternatively, you can considercar-sharing options.
At the same time, most cars nowadays require a subscription to unlock advancedin-vehicle technologiesthat make buyers pick a particular car model, especially those with over-the-air updates. Nevertheless, some of those features are standard, with no subscription required in some vehicles—typically the carmaker’s most expensive model.
Car Subscriptions Could Be the New Normal
Driving different car models from the same brand without worrying about insurance and maintenance costs is more convenient and flexible than leasing a car. However, that car subscription model is usually more expensive than leasing or renting a car. Because of that, most consumers are reluctant to sign up.
But now, most manufacturers are moving towards microtransactions type of subscriptions for customers to access advanced in-vehicle technologies. It’s a tempting business model that could make most car manufacturers have as many subscribers as Netflix. This means more profits for the car companies.
In addition to that, the automotive industry is moving toward electric vehicles, which require less maintenance than gasoline vehicles. This could mean less revenue for the car companies since fewer people will schedule regular service appointments with electric vehicles in the future. But with the subscription model, they could replace the lost service revenue with microtransactions.
You can take extra steps to protect your car, and using the integrated safety tech is often the best option.
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