Subscriptions dismissed as a 'rich person's toy'

July 14, 2018 01:00 AM

Vehicle subscription services are trending, of course, as automakers experiment with allowing customers to make all-in, month-to-month payments, and giving them the option to frequently switch vehicles.

But is this really the industry's next big thing?

Analysts at Edmunds put a pencil to the proposition and concluded that most automaker programs aren't worth the hefty price tag. Even with insurance, maintenance and other fees factored into monthly payments, Edmunds says subscription costs far exceed what consumers currently pay for leases.

"At these price points that we're seeing, [a subscription service] virtually makes no sense to anyone," said Edmunds senior analyst Ivan Drury during a presentation of industry trends to Automotive News.

For example, he said BMW's $3,700 per month offer for top-of-the-line vehicles such as the X6 M under the company's Access by BMW program comes to $133,200, or double what it would cost to lease that vehicle for three years.

"If you went the other route versus the subscription cost … you could essentially have two," said Drury. "You can make your own miniature fleet. You don't even need to use their program. So, it's not going to be worthwhile for a lot of people who are going to do the math. It's just a rich person's toy."

Still, automakers are convinced some customers will pay a premium flat fee for the flexibility and convenience of the programs. And since most subscription programs operate month to month, they point out that consumers can opt out at any time.

"Access by BMW members have the flexibility to swap in and out of vehicles within their membership tier as many times per month as they'd like — from a sedan for their daily commute to an SAV for a weekend getaway and back again," a BMW spokesman said in an email.

Flexibility aside, Edmunds says less than 1 percent of current leases involve payments as high as the $2,000-per-month starting offers from Porsche's Passport and Access by BMW. Even services on the lower end of the cost spectrum, such as Care By Volvo with monthly fees between $650 and $750, align with only about 7 percent of active leases.

Edmunds says customers subscribing to a Porsche 718 Boxster for three years pay 46.5 percent — or $23,019 — more than if they leased the vehicle.

Premium pricing

Edmunds says subscription shoppers usually end up paying a premium for convenience and flexibility.
	3-year lease cost	3-year subscription cost	Subscription premium
Cadillac Escalade	$48,932	$65,300	$16,368
BMW X6 M	$68,974	$133,200	$64,226
Mercedes-Benz SLC 300	$35,031	$39,915	$4,884
Volvo XC40	$25,489	$23,900	($1,589)
Porsche 718 Boxster	$49,481	$72,500	$23,019
Source: Edmunds

When Porsche's Passport launched in October, Porsche Cars North America CEO Klaus Zellmer said the company considered the markup customers would be willing to pay, factoring in all ancillary lease costs, including standard insurance, registration, holding costs and depreciation.

"So, for the 20 percent markup, you get the whole choice and the peace of mind and a flat-fee agreement," Zellmer said. "And talking to customers and dealers, we are pretty confident that is an attractive offer. But, as always, you'll find out once you have it in the market."

A Porsche spokesman said in an email this month: "The Passport pilot program in Atlanta is meant as an alternative to buying or leasing. It is a premium option for customers who want the flexibility to drive a wide variety of Porsche models with the freedom of monthly membership."

A Mercedes spokeswoman said a small percentage of consumers who turn to Mercedes-Benz Collection will use it to sample different models. Those people will convert to buyers or lessees.

"This is not competing with leases," she added. "It's for different needs, different mindsets, different psychographics. They're paying a premium for the ability to do what you can't do out of any other type of automobile acquisition."

Starting at $1,095 per month, Mercedes undercuts by half the programs from BMW and Porsche.

Mass-market appeal?

Edmunds analysts say the freedom of choice automakers tout is undercut when the services are largely available through luxury brands that lack product variety. But Vince Zappa, president of subscription services platform provider Clutch Technologies, says luxury brands generally attract early adopters. He believes that's why the service has launched with prestige brands.

"You'll start to see soon partnerships with other components in the automotive marketplace that are in no way considered white glove," he said.

Several dealership groups and automakers are partnering with Atlanta-based Clutch, including Mercedes, Porsche and BMW.

"The … thing that I think would be far more appealing from a regular consumer standpoint is having a diverse lineup," said Drury. "These luxury automakers — they don't have a minivan, they don't have a pickup, they don't have these other things that on occasion you might actually want to borrow."

FCA US will jump into the subscription market in 2019 under its Jeep Wave membership program, which aims to give Jeep fans wider access to the brand's vehicle portfolio. For a monthly fee, members can choose from a variety of vehicles. The program will be offered in tiers described as "good, better, best," with varied options for insurance coverage, vehicle selection and concierge services.

Said Drury: "When the Jeep Wave program gets implemented, that might be a better indicator of mass market appeal." But about subscription services overall, he added: "I don't know how you're going to come out ahead."