Last week, I wrote about the trend away from car dealership sales and towards direct-to-consumer approaches, especially when it comes to selling electric vehicles. As app-enabled sales of vehicles rise, I wonder: Do "car subscription" models have a chance of being the next big thing?
The Boston Consulting Group (BCG) seems to think so. The consulting firm takes the trend of direct-to-consumer car sales one step further with the suggestion that the market will continue moving away from the purchasing of cars altogether. In the new report "Will Car Subscriptions Revolutionize Auto Sales?" BCG calculates that by 2030, car subscriptions may become a $30 billion to $40 billion market opportunity in Europe and the United States, accounting for 15 percent of total new car sales.
The interest in car subscriptions seems a natural progression from the shift toward online car shopping and reflects the rising trend of consumers preferring to invest in new and varied experiences over material ownership of products. From a sustainability standpoint, it feels like a golden opportunity to get more people driving EVs. Startups such as Los Angeles-based Borrow and Steer are literally wheeling and dealing in exclusively electric vehicle online car subscription services — on a mission to reduce barriers to EVs.
I spoke with the founder and director of BCG’s Center for Mobility Innovation and co-author of the report, Nikolaus Lang, to learn the basics about this innovative new model.
What’s the difference between a lease and a subscription?
Leases typically require a minimum two- to four-year contract, a (sizable) down payment and a credit check, and they impose stiff penalties for canceling. Many exclude additional services, such as insurance or repairs. It may go without saying that the car you start with at the beginning of the lease is the one you’ll be returning at the end of the period.
Subscriptions, on the other hand, cover insurance, maintenance and roadside assistance. They also (often) require no down payment or credit check and customers are afforded vastly more choice and flexibility with subscription services. Some, such as the ones offered by Steer, feature the ability to exchange different models of cars at just a few days' notice with a concierge-like at-home delivery. For example, you could drive an Audi e-tron during the week and switch into a Tesla Model X for a weekend trip.
Startups such as L.A.-based Borrow and Steer are literally wheeling and dealing in exclusively electric vehicle online car subscription services — on a mission to reduce barriers to EVs.
Subscriptions also make the entire car acquisition process "a modern digital experience — from shopping and comparison to transacting," according to the report from BCG. The analysis goes on to claim that "subscriptions represent an opportunity for OEMs to establish a digital channel for selling to end users."
"There are a lot of myths and misunderstandings about car subscriptions," said Lang, who wanted most to emphasize the three myths outlined below, from page 7 of the BCG report.
Myth No. 1: Consumers want to swap vehicles regularly
In reality, only one out of four consumers surveyed for the report listed swapping as a major reason for signing up for a subscription. More important to the consumer is affordability and cost transparency, according to BCG. In addition, the swapping feature and its associated costs drive up the price, which isn’t appealing to a wider range of people.
Myth No. 2: Subscriptions are too expensive
Some vehicles are available for as little as $250 a month, all-inclusive. The perception about high cost is largely a remnant of "swapping-type models." In Lang’s opinion, failed subscription models introduced by automakers such as Audi, Cadillac and BMW faltered because of their enormous price tags.
Myth No. 3: Most consumers want month-to-month subscriptions
Month-to-month plans are considerably more expensive, and most consumers prefer a lower price to a premium experience and features. Month-by-month subscriptions (which can be canceled anytime) are proving to be in low demand, and something that looks more like a micro-lease (such as the three-, six- or nine-month term offered by Borrow) is proving to be much more in-demand, according to BCG.
Lang concluded that where the real business lies is in this type of all-inclusive short-term leasing, which does not automatically include the option to change out the vehicle and stays within a $350-$550 per month range. "It's about all-in digital and more value for money," said Lang when it comes to making this model successful.