Consumers are Turning to Car Subscriptions For Their Transportation Needs
Fewer Americans own a private automobile today than they did a decade ago, according to statistics from the U.S. Department of Transportation. This trend, sometimes referred to as “peak car”, is commonly explained by pointing to social-media-obsessed young people who are delaying getting a driver’s license and buying their first car. Some analysts suggest that car-sharing and ride-hailing services provide a more convenient alternative to getting around than car owning. But — maybe it’s deeper, a fundamental shift in consumer mindset about the hassles associated with car ownership.
Consumers haven’t given up wanting the freedom jumping in a car and hitting the open road whenever we want affords, but rather, today’s savvy drivers understand the cost of buying, financing, maintaining, and insuring a vehicle can be a bad deal.
For decades, we didn’t have many choices other than owning. Conversely, today’s subscription economy booms with new business models for personal mobility. Car subscriptions allow more of us to escape the hefty (and unnecessary) financial burden of car ownership while maintaining access to a car — when we need it. It’s the same philosophy fueling the tiny-house movement, the decluttering craze, and eco-tourism. As consumers, we are eschewing conspicuous consumption and the accumulation of stuff in favor of authenticity and peace of mind.
Cars by the Month One of the newest and most powerful innovations is the monthly car subscription. Imagine gaining access to a vehicle without having to ever step foot in a car dealership, haggle with a car salesman, visit an auto mechanic, shop for car insurance, worry about breaking down, or periodically buy auto parts or a new set of tires. Each one of these tasks requires money and attention, but most of all precious time we could use more thoughtfully. Besides, for many of us who lack a deep expertise in the art of negotiating a deal and the finer points of auto maintenance, buying and owning a car leaves us vulnerable to those who might take advantage of our gap in our knowledge. What adds insult to injury is the fact that a car is a depreciating asset. You might like that new-car smell, but the moment you drive a car off the dealership lot, the vehicle’s value has dropped by 10–20%. How about leasing? While a relatively low monthly lease payment might seem attractive, it’s only an alternative ownership scheme in which the depreciation is baked into the deal. Dealerships, as a standard practice, obviously modify the terms of the lease deal, such as the mysterious “money factor” in every lease contract, to their benefit.
The rate of declining value of a big fixed asset like a car is intensified in the high-tech era. When you plunk down a hefty down payment on this year’s model and start writing those monthly auto-loan checks, you are investing in technology outdated as early as next year. An ever-increasing percentage of a car’s content is digital — electric powertrains, sensor-based driver-assist and safety features, and highly connected infotainment on the dashboard. The technology lifecycle of today’s vehicles operates on a schedule that’s more similar to consumer electronics than traditional auto-industry timeframes. Why spend money on the automotive equivalent of Blu-Ray when video streaming is taking over?
There’s Got to Be a Better Way Today we stream media rather than buying DVDs and CDs. We get clothes, food, and toiletries regularly delivered rather than trudging to the mall. Now, thanks to car subscriptions like Ford’s Canvas, you can shop online for a car, make your selection, and have it delivered to your house a few days later. Time-savings and convenience factors alone are winning over new generations of drivers. The cost for a monthly car subscription, usually in the neighborhood of $400 to $500, includes maintenance, insurance, and any subscription fees. Compare that to the $706 monthly average cost in 2017 for owning a car, if you drive 15,000 miles, according to AAA. That $706 doesn’t include depreciation, which in the first year alone can represent as much as 30 percent of the car’s value.
Unlike a vehicle that you buy outright, with Canvas, your monthly expense is based on actual miles driven and the amount of time you need a car. If you drive fewer than 500 miles per month, your mileage fee is included in your vehicle fee. That’s a great savings for light commuters. The fee can slide up from there — from $30 for 750 miles per month, to $105 for unlimited mileage. You only pay for what you use and don’t need to use a car the entire time you’re subscribed.
The flexibility extends to your choice of vehicle. Take a sporty Mustang this month, switch to a Fusion sedan next month, and then get an Escape SUV. Each time, the vehicle is delivered and picked up by a concierge-like service. When they drop your new car off, there is a $99 fee which assures your new ride is delivered to your door in tip top shape and ready for you to drive. The heavy burden of the car-shopping experience is transformed because you’re not signing a stack of papers across a desk cuffing you to loan or lease for the next three to six years. The ease of a car subscription is perfectly geared to today’s mobile lifestyle, giving you monthly access to a car now, but allowing you to change your ride, or take a break when you need to because you’re planning to travel, or you need to temporarily alter your lifestyle a month with car-sharing, ride-hailing, public transit, bike-commuting, and walking.
The Auto Industry Shifts to Mobility Today’s new breed of customers are leading this revolution, but automakers are not far behind. Smart industry leaders have been quick to shift their business model from vehicle manufacturing to becoming so-called mobility providers. The monthly Canvas service operates as a subsidiary of the Ford Motor Company, just one of about a dozen automakers offering a subscription service.
Ford, like many of its competitors, has made a corporate shift to the subscription economy. In 2016, the company bought Chariot, a shuttle-van service that started by offering Bay Area commuters an alternative to mass transit which wasn’t reaching some areas of San Francisco. Chariot routes are dynamically generated based on the needs of its users. The service now operates in six major metropolitan areas, including New York and London. Ford also operates a one-way bike-sharing service dubbed “Ford GoBike” which expanded to 7,000 bicycles dispersed throughout the Bay Area last year. Plus, a Ford GoBike membership allows its users to use their Clipper card to access bikes; making the whole experience more smooth and easy to build into a routine commute consisting of other modes of public transportation.
Connect the dots, and you have a comprehensive mobility solution based on access rather than buying, owning, parking, and maintaining a car and bicycle. This shift towards multiple, blended, intermodal mobility services by Ford, and nearly every major global automaker, is paving the way toward a new era of autonomous vehicles and efficient transportation. Nobody knows exactly when self-driving cars will be ready for prime time, but it’s almost certain autonomous vehicles will be shared, rather than privately owned.
Today’s monthly car subscription will likely morph into a single app-based service that simultaneously grants access to a portfolio of micro-shuttles, cars, bikes, and mobility robots. It will be an increasingly smart system that unifies your use of multiple vehicles, public transit, tolls, fueling, insurance, and maintenance into a single payment — perhaps using blockchain-supported digital tokens! This Jetsonian future might seem like a faraway vision for most motorists — who after all just want an affordable and easy way to use a conventional vehicle. The approaching era in which self-driving cars are ubiquitous — and private cars go the way of the horse-and-buggy — could be a decade or two away. But make no mistake: Today’s highly connected consumers are already refashioning car ownership with new approaches like monthly car subscriptions. Besides the need to have your hands on the wheel and your eyes on the road, car subscriptions are showing how we are moving beyond constrained last-century transportation choices to satisfy our need and desire for mobility in the 21st century.