The question used to be “Should I buy or lease a car?”, but there’s a new alternative, a Car Subscription. It’s intriguing and I am curious to see where this goes five years from now. Maybe you are hearing about it here for the first time.
A car subscription is all-inclusive: for one monthly price, you get the vehicle, maintenance, registration, roadside assistance, AND insurance. You should have no other cost than gasoline. These car subscriptions are brand new and being tested by major manufacturers including Ford, Volvo, Cadillac, and Porsche. Right now, subscriptions seem to be targeted at opposite ends of the market: luxury vehicles for the very wealthy and more entry level vehicles for younger adults.
At the high end, Cadillac offers Book, which will deliver a new Cadillac of your choice to your door. Get bored with an Escalade? Log in to the Book app and swap it for a CTS-V or one of five Cadillac vehicles. You can change vehicles 18 times a year. The program’s monthly cost is $1,800 and it includes 2,000 miles a month. Presently, Book available only in NYC, Los Angeles, and right here in Dallas.
Porsche’s subscription service, Passport, offers your choice of different vehicles for $2,000/month or $3,000/month, currently limited to the Atlanta area. Porsche’s service has unlimited miles and unlimited switches between models. Weather’s going to be nice, order a convertible. Taking a road trip? Swap for an SUV.
The Porsche and Cadillac deals might appeal to people who are very wealthy and aren’t price conscious. I’m sure some companies will offer this as an executive bonus. Other subscribers may have a temporary need for a few months and may find a subscription appealing for its flexibility with being able to switch from a sports car to a sedan or SUV. But for most drivers, it isn’t a very economical alternative to owning a vehicle.
There are two other programs which might be more suited to the average driver, especially if you are paying a lot for car insurance. Here in Dallas, it seems like everyone pays several hundred dollars a month in car insurance, and possibly more, if you have a younger driver in your household, or have some tickets or claims in your recent driving history. In a subscription, the insurance is already included and doesn’t change based on your individual background.
Care by Volvo is the first nationwide subscription program, and will be available for their new XC40 crossover this spring. Both the car and the subscription are targeted at Millennials, but I think will have appeal to many others. The subscription is $600 a month, but if that saves you $200 a month in insurance, that would be similar to a $400 lease, except there’s no down payment. Is the insurance any good? Yes. It’s Liberty Mutual, with $500,000 in liability coverage, and a $500 deductible for collision and comprehensive.
Volvo’s subscription is a 24 month commitment, with 15,000 miles a year included. You can get a new car after 12 months, by restarting the 24 month clock. This program is more like a traditional lease, with the inclusion of insurance and all maintenance and repairs.
Ford subsidiary Canvas offers used vehicles in their subscription program, presently available only in Los Angeles and San Francisco. These are 2-3 year old lease returns, and are offered for $375-$575 a month for a Fiesta, Fusion, Escape, Explorer, Mustang, or F-150. The monthly base price includes 500 miles, or you can upgrade to 850 miles for $30, 1250 miles for $60, or unlimited monthly miles for $90. This is a month to month subscription, with no long-term commitment. You can change cars every month if you want, but if you keep one vehicle, they lower your base price each month.
A subscription might be an opportunity for someone who has very high insurance costs to lower their total costs. The unlimited miles subscriptions, could be an alternative to leasing or buying for the road warriors out there who rack up a lot of miles. For a family that needs a second or third car for just a month or two, a short term subscription might be an alternative to keeping an extra car all year around. While some car subscriptions are targeted towards the very wealthy, other plans will appeal to people with a low credit score who might otherwise have difficulty getting credit to buy a car.
Would I recommend this? The reality is that all vehicles depreciate very quickly when new, so your most cost-effective choice will always be to keep your existing car and drive it for 200,000 miles. But many of us don’t want to keep one car for 10+ years and carry the risk of having to pay for unexpected and expensive repairs, even though these costs are likely to be low when considered over the life of the vehicle. Some drivers will prefer to have a fixed monthly cost for their transportation, rather than tying up $40,000 or more in one car. And that’s why I think Subscriptions are going to be popular, they’re a good match for our innate preferences for flexibility and predictable costs.
Are you considering a car subscription? I’d love to hear about your experience if you proceed or decide against it. For many people, their cars are their second largest expense after housing (or third largest, if we consider taxes). Cars depreciate quickly, so saving money on transportation can leave more of our cash available for investments which do appreciate. Here’s how I hope people will evaluate subscriptions: is the cost of the subscription less than if you pay for the vehicle, insurance, and other costs separately?