Finance Your Budget Why more of us are ‘subscribing’ to cars … not buying them

Why more of us are ‘subscribing’ to cars … not buying them

Volvo is one of several large auto makers getting into the subscription market. Photo: Getty
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If you don’t want to, or cannot, buy or lease a car, there’s a new alternative that’s set to shake up the vehicle market.

It’s called car subscription and it’s forecast to become a $147 billion industry that is already attracting the attention of the world’s largest automotive makers.

Perhaps counterintuitively, it may also be a Godsend for car dealers struggling under the weight of consumer caution and tighter lending.

Car subscription is neither ownership, nor leasing, nor renting, nor car-sharing.

Essentially, it allows a driver to own a vehicle – or at least gives them the right to drive the vehicle – for a limited time.

A subscriber can use the car for as little as 30 days, then either return it or swap it for a different one.

One company touts its cheapest subscription deal as a $129-a-week fee for a minimum term of 120 days.

Australia has several providers including Carbar, HelloCars, Carly and Blinker, while Honda recently launched its own service Drivible.

And they’re attracting some big-name investors, with Insurance Australia Group in July taking a majority stake in Carbar (operating in Australia since 2016), while Cadillac, Volvo, Porsche, Mercedes-Benz and BMW all have subscription services. Even rental giant Hertz is testing the waters with two pilots in Texas.

How does it work?

Head of marketing at Blinker, George Skentzos, said once a customer’s credentials and credit history are established, they pay a refundable deposit (calculated on their risk and credit rating) and then choose from a range of vehicles.

According to the HelloCars website, you can subscribe to a a 2014 Toyota RAV4, with about 90,000 kilometres on the clock, for $209 a week on a 45-day minimum term, with 450 kilometres included per week.

Source: HelloCars

Once a subscriber drives out the door, their only costs are fuel and tolls, with registration, maintenance and insurance all covered by the subscription cost.

Michael Higgins is co-founder of HelloCars, which recently launched Blinker, a platform for car dealers to run their own services – something he said will help the sector get some cashflow in a difficult trading environment.

Subscribers, he explains, range from people thinking of buying a car and wanting to test the market, to those who can’t get finance to buy a car, or people who are away from home a lot, have only a sporadic need for a car and don’t want the yoke of ownership.

“Basically, it is for people who simply want flexibility,” Mr Higgins said.

“Often it’s people who think they might like to buy a car but aren’t sure which one … so they can test cars to see what suits them and their lifestyles. In a month or two, if they decide they want something bigger they can swap it.”

While the concept might sound radical, the likes of Mr Higgins may be on the ground floor of a potentially huge market.

According to a 2018 report by analysts Frost & Sullivan, subscription models will account for nearly 10 per cent of all new vehicle sales in the US and Europe by 2025-26.

Around 16 million vehicles are predicted to be a part of subscription service by 2025, with predictions the market will be worth $147 billion by 2025.

The changes driving the subscription model

Senior industry analyst with IBISWorld Michael Youren says subscription services are part of the general trend of customers paying for usage periods rather than a product and simply brings car ownership into line with many other products and services.

Mr Youren said with new car sales falling, subscription may provide dealers with “alternative income streams from cars” that would otherwise sit in a car yard.

“Indeed, most platform providers have looked to link with dealerships in order to provide a pool of new or demonstrator cars to clients,” he said. “In some cases, these models can also be looked at as slightly longer test drives, with purchase options attached to most cars available for subscription.”

Mr Youren said it was less likely these services would significantly hurt car dealers in the short term, but rather compete with vehicle finance providers, such as novated lease companies or car loan providers.

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