The vehicle subscription market is not dead, but its pulse is weak.
Subscription programs offering by-the-month vehicle access made a big splash when they first arrived and tried to shake up the leasing market. None, however, had a widespread impact in the U.S. Now, the few startups and programs still in operation are trying to find the right pricing and logistical models to survive.
“There are very specific use cases that do work, but I don’t think it is a high volume” model, Ken Sopp, president of Credit Union Leasing of America, told Automotive News.
Getting the subscription model right is tough; it is capital-intensive and asset-heavy with tight margins. But subscription providers such as Autonomy are working to gain a foothold in the U.S. And automakers such as Porsche, Volvo and Hyundai offer subscriptions in select locations.
Vehicle subscriptions typically work as an open-ended lease with a set monthly payment and sometimes money down upfront. The customer has control over how long they keep the vehicle and can often turn it in at any time.
Directly adjacent is a newer model often called a micro lease, which is available for short terms, such as six months or a year. FINN of Munich offers these arrangements in several East Coast states, and AutoNation launched a similar program in southern California and south Florida last year.
Leasing in general has declined in recent years. Twenty-two percent of customers leased their new vehicle in the fourth quarter of 2023 compared with 24 percent in the same time period in 2021, according to Experian. But leasing is trending upward and could return to pre-pandemic levels in 2024, Sopp said.
Subscription models, like traditional leasing, are defined by debt and depreciation. It can be challenging, however, to price an open-ended or short-term offering profitably, Sopp said. Early provider Fair struggled to stay financially viable as it grew and eventually pivoted from subscriptions.
Luxury brands dominated early subscription services and the programs often allowed customers to change vehicles frequently, said Rodolfo Dominguez, the auto tech lead at Deloitte. These characteristics would prove costly: high monthly payments limited the customer base and serving customer whims was logistically challenging, Dominguez said.
The costs of maintaining the fleet made it difficult for services to deliver the experience they promised, he said. The subscription offerings still available evolved to find “closer alignment with what consumers want and what is operationally and financially feasible,” Dominguez said.
Leasing programs use a depreciation curve to determine payments; finding the right monthly payment to keep up with vehicle value loss over the course of an open-ended subscription, however, is a bit more complicated.
The trick is to not think about a subscription’s potential value as you would for a lease, Dominguez said. A lease is a one-time offering on a new vehicle; subscription providers should plan for multiple customers to subscribe to a vehicle over the course of five to eight years, he said.
Services then use the same depreciation curve to determine payments by slicing it into smaller segments. By estimating resale value at the end of the typical length of a subscription — about 14 to 18 months, Dominguez said — companies can approximate monthly payments for each new subscription of the same vehicle.
Programs should still build risk contingencies into their pricing structure to account for unexpected changes in vehicle value, Dominguez said. But if they plan to subscribe a vehicle multiple times, they have “a little bit more freedom to spread out the risk,” he said.
Hyundai’s Evolve+ program takes a niche approach to this challenging market. Only two vehicles — both electric vehicles — are available for subscribers: the Kona Electric for $699 per month and the Ioniq 5 for $899 a month.
Autonomy offers a different pricing structure in which customers can choose between a higher down payment and a lower monthly payment or vice versa. Average payments are about $500 to $600 a month, Autonomy said.
Many services bundle insurance and maintenance plans in subscription offerings. By doing this, they build in sources of profit over multiple subscription cycles instead of just the typical lease cycle, Dominguez said.
The bundle also is attractive to customers because “I know how much with certainty I am going to be paying per month for my mobility needs,” he said.
Structuring monthly payments correctly only matters if companies can find customers to subscribe. Programs are looking for those subscribers in niche customer bases in specific geographies and demographics, said Angelica Jeffreys, vice president of automotive retail at Equifax.
But “I don’t think there is really a firm path or a firm idea of who is going to be the demographic that takes that any further than what we have already got,” she said.
Flexibility, affordability and digital access are some of the most attractive offerings of subscription programs and are key paths identifying “underserved consumer sectors that could greatly benefit from subscriptions,” Dominguez said.
Subscriptions do not show up on a consumer’s credit report because it is not considered long-term debt. That detail might be important to the younger buyers who question whether they need to own a vehicle, Dominguez said. In Deloitte’s 2024 Global Automotive Consumer Study, 28 percent of U.S. respondents 18 to 34 years old said they were interested in a subscription as an alternative to ownership.
Flexibility could be enticing to retirees who spend time in different parts of the country every year, Dominguez said. And lower barriers to qualify would benefit international students or workers without a credit history.
Affordability also becomes especially important as average new vehicle monthly payments tick upward. Consumers on average paid $605 a month for a new-vehicle lease in 2023, up from $562 in 2022, according to Experian. And they paid $734 per month for a new-vehicle loan on average in 2023, an increase from $685 a year prior.
Offering a vehicle for subscription multiple times opens up different consumer budgets, Dominguez said. The first subscriber might be more affluent, but if a company offers different price points for the second, third and fourth subscribers they gain access to customers who cannot afford to pay as much, he said.
Finding these customer bases is an important step, but to survive, young subscription programs must remember to serve subscriber needs and keep vehicles in circulation, he said.
“The process and the backbone are still very important,” Dominguez said.