Why Are Car Companies Racing Toward the Subscription Model?

In recent years, car companies have introduced subscription models for customers that allow more flexibility than leasing and loans. There is also another type of subscription model that gives customers access to certain services after purchasing the vehicle.

But why are car companies moving towards a subscription model? And is that feasible in the long run? Let’s dig deeper to find out.

What is a car subscription?

A subscription model is tailored for customers to pay monthly or yearly fees to access different vehicles offered by the same company. This means that if you have registered for a car subscription service, you can easily switch vehicles depending on the package contract.

The other type of car subscription involves paying a recurring fee to unlock certain features or services offered by the car manufacturer after you purchase the vehicle. For example, as reported by Bloomberg, BMW introduced a $18 monthly subscription to unlock heated seats.

If you want to unlock all the features of Tesla self-driving software that brings your Tesla close to Level 3 driving automation, you can pay a monthly subscription of $99 or $199 depending on the package.

What is the difference between car subscription and leasing?

Both car subscription and lease contracts do not give you ownership of the vehicle but are structured differently. When you sign a lease, you agree to pay a fee for access to a specific vehicle over a period of time – most car leases have a minimum term of 36 months.

At the end of the lease, you return the vehicle to the dealer or decide to buy it. You could be penalized for early termination if you want to replace your car before the lease expires.

For a car subscription, on the other hand, you pay an annual fee that does not tie you to a single vehicle – you can change cars at short notice. Car subscriptions are also easier to cancel than leasing contracts, since you usually do not receive brand-new vehicles, but in most cases used cars that are not older than three years.

That being said, most car subscription packages do not require an additional payment to cover insurance and maintenance costs like you would with a lease. Most car subscription packages also offer roadside assistance, but you’ll be expected to pay for fuel.

Despite the flexibility of car subscription models, leasing is often a cheaper alternative. According to Top Speed, the subscription fee for access to most Porsche models is almost double the cost of leasing it — if you don’t add in insurance and maintenance costs.

With that in mind, car subscription packages are often more expensive because you have access to more car models from the same make of car, and the package fee includes insurance and maintenance – but you’re limited with a lease.

Alternatively, consider renting a car to save money. You can easily get one from your local car rental company, or you can check your options with some of the best rental car apps to give you more options.

Why automakers offer subscriptions

Most automakers are moving toward a subscription model because it generates more revenue. According to Business Insider, major automakers like GM, Ford, and Stellantis have forecast annual revenue of over $20 billion from monthly subscriptions by 2030. The potential is huge and could double the sales of most automakers over the next decade.

However, most manufacturers target subscriptions through service options that enhance the driving experience. In short, automakers offer features like driver assistance, cellular data connectivity, vehicle diagnostic tools, and satellite radio through microtransactions. They might even charge you to enable automated vehicle technologies that improve safety.

Another reason automakers offer subscriptions is that some of these software technologies, like Driver Assist, require regular maintenance — and manufacturers provide over-the-air updates. Additionally, the subscription model makes it more affordable for drivers to access additional features rather than asking them to pay extra money to get a more expensive option.

On the other hand, some manufacturers have a subscription package for customers who want to drive different car models without buying them.

Automakers that offer a subscription

Manufacturers offering a subscription model that gives customers access to different vehicles from the same brand include:

  • Ford (Ford canvas)
  • BMW (accessed by BMW)
  • Volvo (maintained by Volvo)
  • Porsche (Porsche drive)
  • Mercedes-Benz (Mercedes-Benz Mobility)
  • Lexus (Lexus One)
  • Cadillac (Book of Cadillac)
  • Hyundai (Hyundai Subscription)
  • Audi (Audi Select)

However, most car subscription models offered by car manufacturers are only available at selected locations. If the car subscription you want isn’t available in your location, you can consider third-party providers like AAA Car Subscription, Subscribe with Enterprise, Sixt+, Hertz My Car, Fair, and Borrow that offer car subscription packages. Alternatively, you can consider car sharing offers.

At the same time, most cars these days require a subscription to unlock advanced vehicle technologies that drive buyers to select a specific car model, especially those with over-the-air updates. Some of these features come standard, however, and some vehicles don’t require a subscription – typically the automaker’s most expensive model.

Auto subscriptions could be the new normal

Driving different models of cars from the same brand without worrying about insurance and maintenance costs is more convenient and flexible than leasing a car. However, this car subscription model is usually more expensive than leasing or renting a car. Because of this, most consumers are reluctant to sign up.

But now most manufacturers are moving toward microtransaction subscriptions for customers to access advanced vehicle technologies. It’s an enticing business model that could make most automakers have as many subscribers as Netflix. That means more profit for the car companies.

In addition, the automotive industry is moving towards electric vehicles, which require less maintenance than gasoline vehicles. This could mean less revenue for the car companies, as fewer people will make regular service appointments with electric vehicles in the future. But with the subscription model, they could replace lost service revenue with microtransactions.