The modern economy spends a lot of time and resources changing the way consumers pay for things. The items and services you buy don’t change that much, but the way you pay for them does. A good example is the ridesharing industry. It’s simply another way to call and pay for a taxi. Ridesharing services immediately seemed superior in service to regular taxis. But it’s important to note that all ridesharing services have always operated at a loss. If you paid for a ride at the rate it really cost, it remains to be seen if you’d think it was superior to the old taxi model. Recently, car manufacturers and middlemen have started to offer auto leases as a service, in the same way the tech industry offers software. However, if you think car subscription services can currently compete with owning leasing, or monthly car rental, you should think again.
How Subscription Pricing Works in Tech Firms
The tech industry is the leader in offering services based on subscriptions. The three main versions of this method of providing services and billing customers are as follows:
Software as a service (SaaS), is now the most popular way to use and pay for computer programs. Companies completely skip the need for an IT staff that downloads, installs, updates, and protects computer programs for workers and customers. Most SaaS setups allow everyone to simply use a web browser to log in or otherwise use whatever software the company needs to get the job done. SaaS pay a subscription to have their software needs taken care of from a central location, hosted on a remote server, that anyone can access from the internet. They get to skip all the hardware and software updates needed to keep the system going.
Platform as a service (PaaS) is similar to SaaS. But instead of offering access to software, PaaS offers companies a place to create and host their own software. If you have a customized app you want to work on remotely, PaaA is perfect. You can also serve the app to your customers from a PaaS location.
Infrastructure as a service (IaaS) are simply computer resources managed by others. You pay to have networking, storage, and other computer resources available at all times, with the flexibility to scale up or down at a moment’s notice. You’re not buying software, you’re renting hardware that you can use to host your software and apps.
A traditional car rental company probably uses all three of these “cloud” computing services. They use software programs on SaaS, run apps for reservations and other services on PaaS, and use IaaS infrastructure to host their websites.
Car Subscriptions as a Service
In a way, car subscription services are similar to IaaS deals in the tech sector, with a little SaaS thrown in. You don’t own the car, and you can change it regularly to meet your current needs, just like IaaS. Including insurance and maintenance is like SaaS. You don’t manage the details, you just show up and go.
Car makers don’t have any trouble producing excellent vehicles. Cars have never been safer, more reliable, and more economical on fuel than they are right now. However, carmakers do have trouble selling their products at a price the public can afford. This led to innovations in financing. Loan terms were extended to allow you to pay for more expensive cars over a much longer period. Lease programs were another tactic to offer new cars to consumers who couldn’t afford large down payments, or couldn’t meet other lending standards.
Carmakers are now hoping to use the same subscription service model that tech firms use. They supply you with access to a new car, and take care of insurance, maintenance, and mileage. Some services will let you swap one car for another on a regular basis. These subscription deals may appeal to a new generation of drivers who aren’t used to owning much of anything. They’re accustomed to paying for lots of things like housing, transportation, communication, and entertainment on a subscription basis. Why not cars?
Lots of major manufacturers are testing car subscription services in very limited areas. Most are luxury brands like Mercedes Benz, Porsche, Cadillac, and BMW. Ford also has subscription plans for more affordable cars like Fiestas and Escorts. However, their subscription service is simply a trail in a few locations, and the cars appear to be limited to used cars from lease repatriations.
How Car Subscriptions Work
Different carmakers have different plans. Some plans let you drive a single car for a set period. That’s similar to a leasing deal, but with maintenance and insurance added to your bill. Of course with a lease, you turn in the vehicle at the end of the term, and start looking for another car to lease or purchase. With a car subscription, at the end of your term you would get a replacement vehicle while the payments continued uninterrupted.
Other plans let you swap one type of vehicle for another on a regular basis. So, for instance, you might drive a small compact during the week, but occasionally drive a sports car or an SUV.
So What’s the Catch With Car Subscriptions?
The short answer is cash. Car subscription services are remarkably expensive compared to owning a car, leasing a car, or monthly car rental rates. According to Cars.com, current subscription plans are between 28 and 102 percent more expensive than leasing a car and paying for your own insurance and maintenance. And that’s not all. Most subscription plans charge fees just to join, and they’re pretty steep, ranging from around $500 to $600. For comparison, for the same money as just the fee for joining a subscription service, you can get a monthly car rental deal. Many subscription deals also charge a fee every time you swap cars. That’s not a problem with long term rentals or short term leases.
Who Is the Target Audience?
It’s hard to determine who the industry is targeting with their subscription plans. The plans seem to appeal to people who like to change their cars a lot, and who don’t like to take care of maintenance and insurance. These consumers understand they’re paying more for the ability to change cars more often. For the vast majority of drivers, the service will cost too much, or be too restrictive to be a practical alternative to owning, leasing, or renting a car.