The car industry has undergone profound restructuring over the past decade, with new ownership patterns emerging to meet new consumer needs. By far one of the most sought-after alternatives to buying a car has been car subscription services. They offer convenience, ease and the ability to drive a variety of vehicles without the feeling of permanent ownership.
Buying a vehicle is a lot of money. Apart from the fact that the amount of paperwork needed is very frustrating as a new vehicle owner. Apart from that, Service fees, parking issues, and robbery fear are also issues nowadays.
So, how do car subscription compares with buying a car? Here we shall review both alternatives in depth, noting their advantages and disadvantages, cost, and best user situations so that you can decide what is best for your requirements.
Overview of Car Subscriptions
Car subscription plans are a contemporary means of acquiring a car, wherein customers can “subscribe” to a car for a certain period, typically for a month.
A Car Subscription is an easy mode of car renting for 12 months or more, as per your needs. The Car company typically takes care of insurance, servicing, and all the paperwork. It is similar to a Netflix subscription, where you pay an annual fee depending on the type of interests.
Key Features of Car Subscriptions:
- Flexibility: You can change cars or cancel a subscription anytime.
- All-Inclusive Pricing: Coverage, servicing, and other charges are all in one package.
- Short-Term Commitment: Subscription varies from one month to one year, subject to the firm.
- Wide Selection: Options for several car types for different uses, e.g., SUVs for weekend getaways or sedans for driving within the city.
What Are Some Disadvantages of Car Subscription?
- Mileage Limit: Once you exceed your kilometers limit, you will have to pay a small amount for any further distance that you travel.
- Petrol Charges: You will still have to pay for petrol.
- Few Months: vehicle subscribing doesn’t make sense financially in the long term.
Is a Car Subscription appropriate for me?
It is only financially, as calculated above, worth it to keep a vehicle subscription for a very short time. The ownership of the vehicle pays if you have a partner that you can split the cost with, and you will not keep a vehicle for longer than 1 or 2 years. In addition to that, if you don’t necessarily need to pay the high cost of vehicle ownership but you still enjoy a secure means of income, then a car subscription is most likely the most suitable for you.
Overview of Car Buying
Buying a new car involves using the money to buy the car, either with cash or with financing. The owner normally has full ownership, where it’s his decision whether to pay for insurance, maintenance, and registration.
Car Buying Characteristics:
- Ownership: The car is yours to own, sell, and change.
- Long-Term Investment: Being the owner can be a cheap option in the long run if you keep the vehicle for many years.
- Equity Building: Paying back a vehicle financed gives you an asset worth selling.
- Customization: The ability to personalize the vehicle of your choice.
Cost Comparison
Cost is an essential aspect when comparing car subscription vs. buying a car.
Vehicle Subscription Costs:
- Monthly Fees: Subscriptions are between $500 and more than $2,000 based on the model of the vehicle and services provided.
- No Down Payment: Subscriptions usually do not have a high initial payment.
- Bundled Costs: Maintenance, registration, and insurance are paid in advance, with monthly recurring fees.
Car Buying Costs:
- Initial Cost: A Down payment of 10% to 20% of the vehicle’s cost is needed.
- Loan Payments: Monthly finance charges, which are dependent on loan terms, interest rates, and credit histories.
- Ownership Expenses: Repair, maintenance, and insurance expenses, which rise as age advances.
- Depreciation: New cars depreciate by 20–30% during their first year, which impacts resale value.
Example Scenario: A $30,000 car financed for five years at 4% interest will cost somewhere in the range of $552 per month. Compared to that, a car subscription service for the same vehicle can run $800-$1,000 monthly, and includes insurance and maintenance.
Convenience and Flexibility
When comparing flexibility, vehicle subscriptions take the lead over car buying.
Car Subscriptions:
- Ideal for temporary needs or individuals who desire to drive multiple vehicles.
- For expats, remote workers, or people who are not willing to commit for several years to car ownership.
Car Buying:
- Perfect for people who will be driving the same vehicle for a number of years.
- Less flexible because it takes time to sell a vehicle, and it causes depreciation losses.
Maintenance and Repairs
Car maintenance is another case where subscriptions are superior.
Car Subscriptions:
- Routine repairs and maintenance are paid for by the provider, which saves time and effort.
- Hassle-free with comprehensive insurance coverage as part of the subscription cost.
Buying a Car:
- Maintenance and repair costs are borne by the owners.
- Involves booking and do-it-yourself repairs.
Ownership and Equity
Ownership is the biggest difference between vehicle subscriptions and buying.
Car Subscriptions:
- You don’t own the car, so no long-term asset or equity.
- No resale or trade-in value opportunity.
Car Buying:
- Provides complete ownership and equity at loan repayment.
- The car can be resold, traded, or kept for long-term use.
Best User Situations
Each solution suits some lifestyles and wishes.
Car Subscriptions:
- City residents who won’t need a vehicle for the entire year.
- Individuals who like to drive the newest models without actually owning them.
- Individuals with temporary or short-term requirements, i.e., business users or holiday buyers.
- Subscribe to a vehicle if you want flexibility, convenience, and changing cars without long-term cost.
Car Buying:
- Heavy users who wish to own the vehicle for a few years.
- Daily drivers and long-distance travelers (most subscriptions have mileage limits).
- Cost-conscious buyers are seeking a low-cost option in the long run.
- Individuals who value convenience rather than price.
Environmental Implications
- Subscriptions to cars can encourage car usage in an eco-friendly manner by allowing one to use small, fuel-efficient cars when there is a need.
- Owning a car, especially an electric or hybrid car, will also reduce your carbon footprint if driven for several years continuously.
Subscriptions Are Mostly Offered by Startups
The car subscription idea is not new. Big automakers experimented with the business model in the United States a few years back, with limited success. Today, however, third-party firms are building fleets and offering subscriptions to drivers on the internet and mobile apps.
Some of the new subscription businesses are international. Two of the companies growing in the U.S., SIXT and FINN, are German, as the vehicle subscription model has picked up some speed in Germany.
There are also domestic U.S. companies, such as Autonomy and Ferry, which are providing subscriptions on electric cars, and GO, which is experimenting with a long-term subscription model. The companies are now small and are only in a limited number of markets, at least for the time being.
Autonomy purchased 23,000 EVs in August, which is potentially the largest order from an auto subscription company in recent times (we can’t verify that, since SIXT did not give Money permission to comment on the size of its subscription business.)
It will take some time before the new fleet of vehicles gets plugged into Autonomy’s fleet. The numbers are not much different for FINN either.
Co-founder Maximilian Wühr states that the business at this time has approximately 1,200 subscribers in the US but hopes someday their activities in America will be comparable to or even greater than their rates from Germany, where FINN has 18,000 subscribers.
Wuhr explains that some of FINN’s members enjoy having the freedom to switch cars and get their hands on new cars every so often. With other customers, there are soon-to-arrive life milestones that, within a few months, not a few years, will be equal to a new whatever. For instance, one family that’s expecting another baby would want a minivan when the baby’s born, yet would be happy to drive a smaller vehicle in the meantime.
Subscriptions May Have Complications
Since insurance is often bundled into a subscription, you may find that you’re paying according to your credit and your ability to drive well (or, conversely, poorly).
Car subscription businesses will probably review your driving record and conduct a soft inquiry (that is, one which will not harm your credit rating) on your credit report. If the company doesn’t approve, they can raise the cost of the monthly subscription or simply decline to offer you a subscription.
At the same time, the subscription itself is less likely to harm your credit. One of the biggest distinctions between leasing and subscriptions, he goes on, is that a lease will appear on your credit report in that it’s a formal agreement with an end date.
Since Autonomy’s subscriptions are indefinite agreements, they won’t appear as debt on your report, Painter said. Some portion of the subscription might appeal to some drivers, he believes.
One final note about a subscription: its possibility of making you pay up front. Most subscriptions (like most leases) don’t obligate you to pay some added fee in advance. Some do, and that will increase the cost of the subscription.
Of course, when you’re comparing subscription offers, you’ll want to know mileage allowances — after which you pay more to drive — and (potential) up-front fee and balance against your selection.
Beating the price premium for subscriptions
Even subscription businesses acknowledge that it will be difficult to limit the cost difference between subscribing for an automobile instead of buying or leasing it, at least in the short term. GO founder and CEO Michael Beauchamp calls it nearly impossible for short-term vehicle subscription businesses to achieve levels of prices competitive with lease prices.
A lone analyst gives an explanation that the cost of the car subscription is one of the main drawbacks. Tyson Jominy, vice president of data and analytics at JD Power, is not sure that American drivers will embrace the vehicle subscription practice because people do not feel like spending another dollar on their vehicle.
“It’s proven to be an extraordinarily difficult business model to try to solve.” He days that everyone who’s ever been a carmaker has tried it, and they’ve given up. “It’s just difficult to justify paying that much more money for the privilege of switching in and out a great deal.”
Part of the business challenge for the startups is that new vehicles depreciate exponentially the minute a person takes them off the dealership lot.
Car subscription companies, particularly those that are selling to customers who desire a luxury experience, sell the vehicles after a couple of years and substitute them with new ones. That is to say that they must charge fairly expensive prices to recoup what may be tens of thousands of dollars of depreciation in that period to make a profit.
And to add insult to injury, vehicle leasing is down as well because leasing prices increased even faster than vehicle prices throughout the pandemic. So, if subscriptions are going to be more expensive than leases, and lease prices already are beyond the means of most vehicle buyers, he estimates the market would still be “tiny” of willing buyers that can afford to pay a subscription.
How Subscriptions Might Be Better
Before a car subscription can be called a non-starter by firms and consumers, they should think about how subscriptions will likely get better. The improvements will start, they add, with plenty of new competition and innovation.
In the future, Painter foresees there will be stiff competition for providing vehicle subscriptions from other startups, as well as from automakers. Vehicle subscribing via an app will be as simple as renting an e-scooter, he foresees, and so the convenience aspects will prompt the traditional industry players to revamp their business models. Leasing will be simpler as well, he observes.
Subscription firms believe their greater reliance on lean, web-based platforms, with no need to pay for a bricks-and-mortar presence, ultimately will drive lease prices out of the market. They will present an even faster online check-out procedure than purchasing or leasing at a discount.
New alternatives will come through innovation; however, confusion, maybe.
As companies such as GO introduce multi-year subscription models, the question of what a vehicle subscription is in the first place will only grow more baffling.
As it stands, Volvo, for instance, already has a subscription which Jominy describes as “more of a short-term lease than it is a subscription, although they call it a subscription.” (Customers can cancel or trade cars after five months.) And Enterprise has a “subscription” in some markets that’s fairly difficult to distinguish from long-term rental.
The idea of car subscription is capable of becoming confused along these lines, but Beauchamp notes it’s great that some startups are experimenting with subscriptions in various manners, attempting to move us beyond the dichotomy of leasing or buying.
More Digital Nomads, More Car Subscriptions?
Decreasing lifestyles and less time could also have their share in the future of car subscriptions. “People don’t like to spend their Saturday at the showroom,” Beauchamp states.
When subscription companies grow, Painter argues, there will be more drivers who find they are better off without locking themselves into a long contract, especially those who travel from city to city.
“There are plenty of reasons to be flexible in contemporary life, but this new type of emergence of the nomad-the shopper who’s living in multiple cities and on the go-is certainly part of it.”.
But if you’re a student, in the military, or you have a job and that pulls you out of town from where your family resides, all those are good excuses not to have to move into a three-year lease,” Painter says.
While certain industry analysts question whether subscription firms will ever truly redefine the way we access automobiles, it appears certain that, in the short term, more Americans will be able to afford a vehicle subscription as startup firms purchase more vehicles and scale up to new markets.
As BCG researchers recently wrote in a report issued in January, “in the next few years, the lines between subscribing, renting, and leasing will become blurring.”
Final Thoughts: To Subscribe or Buy a Car?
If convenience and flexibility are your thing—like trading cars without long-term commitment—then a subscription could be the way to go for you.
Or if you prefer to own the car and advantage in the long run of owning an asset, then buying might be the better option.
Finally, it is your choice that is correct according to your lifestyle, requirements, and financial goals. Think very clearly about the pros and cons, and choose the most convenient for you.
