Wherever the subscription-based pricing model takes hold, industry-wide change follows closely behind. The advent of brands like Netflix and Hulu irrevocably changed TV. Hellofresh introduced people worldwide to healthy, home-delivered artisanal meals, and in the process, it changed our shared perception of the grocery store.
The subscription-based pricing model brings disruption to legacy brands. There are few corners of the modern economy that remain untouched by the subscription schema. The auto industry is one of the last true frontiers in terms of subscription pricing. But even that is about to change.
A New Kind of Subscription
The subscription-based pricing model and the automobile industry are a strange marriage, to say the least. On the surface, they seem to be two separate worlds with little to do with one another. And yet, it’s precisely that “out of the box” thinking that makes the idea of a car subscription service so palatable, and apparently successful. According to Allied Market Research, the automotive subscription market, which is currently valued at $3.5 billion, will become a $12 billion industry by the middle of the decade.
Enterprise, one of the leading names in automotive rentals in the United States, offers a boilerplate example of how automotive subscriptions work. The obvious question is of course, how does an automotive subscription differ from a lease. Here’s how it works.
For a flat monthly fee, the customer gets to reserve a vehicle of their choice. The taxes, insurance, and rental fees are all included in that monthly cost. A typical cost for Enterprise’s subscription service, or its competitor Hertz, is around $1,100 per month. Prices do, however, differ greatly across the industry.
Unlike a lease or short-term rental, with Enterprise’s specific package the customer gets unlimited mileage, can switch cars up to four times per month, and may cancel the service anytime after the second month. While terms of service differ between rental companies, each one employs a similar service model.
The Decline of the Personal Car
Why now? What’s driving the growth of the automotive subscription industry? Changing consumer attitudes? Generational differences in the concept (and importance) of ownership? In reality, subscription-based automotive rental has gained a foothold due to a wide range of real-world factors.
According to CBinsights, the prohibitive price of automobile ownership is the driving factor. As of 2019, the average car costs more than $37k to own. Since then, the cost has only risen. In addition, environmental fears coupled with the automotive industry’s significant carbon footprint, have made consumers leery of big-ticket purchases in the face of an uncertain future. The bottom line? Ownership no longer holds the appeal that it once did, giving rise to the sudden popularity of cars as a service.
Paving the Road Ahead
Car subscription services aren’t exactly a new thing; smaller companies offered similar iterations of the subscription model long before subscription pricing was popular in general. The difference now? Visibility.
A number of big, brand name auto manufacturers have adopted the subscription model over the last decade, starting with Volvo. The “Care by Volvo” program was one of the first large-scale, financially viable subscription car services ever introduced. Since then, names like BMW, Audi, Land Rover, Cadillac, and Jaguar have all entered the subscription service space to favorable results. These dealer-driven promotions have helped to pave the way forward for a new paradigm of leasing/rental/ownership. As societal influences continue to affect the automotive industry, expect to see the subscription model continue its meteoric rise in the years to come.
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