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Car Subscription Services / Car Flatrates: Should you do it?

Car Subscription Services / Car Flatrates: Should you do it?

26 April 2019 Concept Car

We’re living in the age of flexibility. We no longer buy, we rent. We no longer own, we share. The ideal of the day is an empty house with instant access to everything.

Car subscription services seem like they were made for this age. They add an entirely new sense of freedom and diversity to driving: You never actually own a car. But you can always get just the one you need.

Currently, car subscriptions (aka car flatrates) are still an expensive niche product. But there is every reason to believe they could soon win over many mainstream consumers.

Let’s take a look at what makes them so alluring.

What is a car subscription service?

With some mobile phone contracts, the device is part of the package. So when your contract ends, you return your phone and get a new one.

Car subscription services are a bit like this. You could also compare them to Netflix. You never actually own movies anymore, as you did with DVDs. Instead, you pay for instant access to thousands of them.

With a car subscription, you pay a flat monthly fee. This allows you to use one specific car or select from a range of models. It all depends on your needs. If you no longer require the car, you simply cancel your contract and move on.

Subscription vs Leasing vs PCP vs Renting

Car subscription services are very similar to leasing and PCPs in many respects.

Just as with leasing and PCPs, you never actually own the car during the contract period. Instead, you ‘rent’ it for a certain amount of time. During this period, you need to stick to a few restrictions in terms of using the car. You can not make any changes to it, for example.

And yet, there are some important differences between these three financing options.

PCPs: Buying slowly

With a PCP, the goal is to ultimately buy the car. The monthly payments are calculated on the basis of the purchasing price of the vehicle, But there’s a twist. At the end of the contract, you either have to buy the car or start up a new contract with a different model.

PCPs are a reasonable alternative if you don’t have the resources to buy a car outright. Buying the car at the end of the contract, however, usually means you’ll have paid more overall than with a regular loan arrangement.

Leasing: Drive, never owning

Leasing looks very similar on paper. You make monthly payments for the right to drive it. At the end of the lease, which is also usually around three years long, you return the car to the dealership. So you never actually own it.

Leasing is great for businesses, as it tends to be deductible. It also allows you to drive a new car every three years. On the downside, you are not building any assets: You can not resell the car at the end of the lease. Nor can you continue leasing it for a few more years.

Renting: Lump sum

Renting is essentially identical to leasing. The main difference is that you pay for your car in a single lump sum rather than monthly instalments. For this reason alone, renting is typically used for shorter lease periods.

Car Subscription Services: Unparallelled convenience

With a subscription model, too, you are never the legal owner of the vehicle. Instead, you pay monthly instalments, similar to leasing. There are two important differences with leasing, though:

a) You can end the contract short term, similar to how you would end your netflix subscription
b) You can often switch the car you’re driving. This can either be done as part of the existing subscription. Or you can take out a new one with a different model.

This way, car subscriptions offer unparalleled convenience. They add a sense of luxury to the equation that none of the other financing plans can offer.

Outrageously expensive

Let’s not beat around the bush: Car flatrates are expensive. Right now, in fact, they can be outrageously expensive.

In the USA, manufacturers like BMW are charging customers up to $2,000 (or more!) for their subscriptions.

There are obviously far cheaper options on the market as well. But even these will set you back quite a bit more than a leasing arrangement.

So why do it?

The main benefit of car subscriptions is that you can adjust them to your changing needs and current budget. Let’s say you suddenly lose your job and can no longer afford your car. Despite this, with leasing or a PCP contract, you will have to continue paying your monthly contributions. This can easily get you into trouble.

With a subscription, you simply cancel it and save the money until you’re back in the saddle again.

Subscriptions also allow you to select a different car when you need it. Let’s say you usually need your car for short trips into the city. But when you’re going on Summer vacation, you could use a slightly bigger model. With a lease or PCP, this would not be possible. With a flatrate, you simply select a different model for three or four weeks. Once you’re back, you simply trade it in for the old one.

Manufacturer Programs

Car flatrates have mostly stayed under the radar until recently. But behind the scenes, manufacturers have worked at a frenzied pace to get their programs on the way. This is because these car subscription models are extremely lucrative for them.

Most of the current offers by BMW, Audi, Porsche and even Volvo are designed for financially well-off entrepreneurs. These deals often include road side assistance, insurance, breakdown cover as well as servicing and maintenance.

With these premium packages, you can basically switch cars as often as you like. First, you select a different model using your app. Then, since a valet service is typically included, your car is delivered straight to your door.

There are many different spins on this type of car subscription service. None of them is even remotely affordable for the average customer.

Drover: The future of driving?

One company has set its sight on changing that. Founded in 2017 as a venture capital project, Drover aims to make car subscriptions the new standard. Founder Frank Leuschner clearly feels the time has come for a wider breakthrough:

“We know that an increasing amount of consumers don’t hold owning a car in the same regard that previous generations did, and many prefer a more flexible option that is suited to their ever-changing lifestyle.”

Drover offers a wide range of models for every purpose and budget. Subscriptions don’t have to cost the world – you can get a 2018 Toyota Aygo for just over 200 a month. That price includes absolutely everything, suddenly turning Drover into a serious competitor for leasing and PCPs.

Is it just making things more expensive?

That said, many experts have warned that car subscriptions could end up just making everything more expensive. When you’re buying a car – either through a PCP deal, a regular loan arrangement or used – you always have the possibility of selling it. This residual value stays in your own pocket and is an important asset.

None of this applies with the new breed of rental agreements. Here, all the money you pay goes directly into the pockets of the car provider. As soon as your contract expires, you return the car to the dealership of manufacturer and you’re left with nothing.

No haggling, no fun

Also, there is no haggling with subscription models. To some, this is precisely why they are so attractive. As Business Insider stresses, however, ultimately, consumers are hurting themselves:

“To anyone with experience buying or leasing vehicles, no-haggle is a non-starter. Yes, the buying/leasing process through a traditional dealership can be annoying and time-consuming. But by surrendering their ability to negotiate on price, consumers give away their biggest economic advantage when obtaining a set of wheels. This matters because car payments are typically most peoples’ second largest fixed monthly expense, after rents or mortgages. (…) So why do consumers want bad deals? Fear, plain and simple. Car dealerships are intimidating, and even a cheap car will set a buyer back $20,000. A lot of folks are willing to sacrifice thousands of dollars in savings to avoid the unpleasant experience.”

Used cars: Still ideal

If you want to remain flexible without handing over all your cash to manufacturers, then used cars are still the best deal.

When you’re buying used, you avoid the heavy losses through depreciation. Used cars are still great value these days – see our guide for the most reliable used cars for that. And if need be and you’re playing your cards well, you can sell your vehicle at almost the same price and switch to a different model.

It may not be quite as convenient and flexible as a car flatrate. But it’s probably the closest you can get without breaking the bank.

26 April 2019 Concept Car