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Subscription-Based Car Buying Picks Up Steam

By Published on .

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Cadillac is pitching a service that lets subscribers swap cars almost like Netflix DVDs.
Cadillac is pitching a service that lets subscribers swap cars almost like Netflix DVDs. Credit: Cadillac

Buying a car keeps going the way of Netflix, as more automakers and dealers adopt subscription-based purchase models that give buyers access to multiple models for a fixed monthly rate.

Cadillac, which launched its Book By Cadillac program in New York in January, announced Monday it's expanding the service to Los Angeles and Dallas. Monthly memberships run for $1,800 plus a $500 sign-up fee, and cover registration, taxes, insurance and maintenance. Volvo and Porsche this fall launched their own subscription services.

The trend is even heading down-market to cheaper vehicles. One program called Flexdrive allows dealers to make new and used cars available for subscription terms as short as seven days. A single fee includes insurance, maintenance and roadside assistance. The service, available in Atlanta, Austin and Philadelphia, is a joint venture by Autotrader-owner Cox Automotive and automotive services company Holman Enterprises.

The programs come as dealers and automakers adapt their tactics in the so-called sharing economy. More people, especially urban dwellers, are turned off by the hassles and long-term commitments that come with traditional car buying. Subscription services are a step-up from commitment-free ride-hailing services like Uber and Lyft. But the pay-by-month or week options still provide more flexibility and variety than leasing or buying.

Flexdrive
Flexdrive Credit: Flexdrive

"People are moving more toward pay-for-use across the board. You see that in entertainment, you see it in things like Airbnb," says Jose Puente, president of Flexdrive, which uses the tagline "The Fast Lane to Freedom." In automotive, "the market has been there for a long time," but "the options just haven't been there for consumers. We are in a stage now where technology is actually able to facilitate it."

Flexdrive will soon come to Dallas, Miami, Los Angeles and San Francisco, with plans to be in a total of 24 markets by end of 2018, Puente says. Subscribers can swap cars within their subscription terms. Paperwork is kept to a minimum; there are no credit checks, but users must be at 25 years old and have a clean driving record, a credit card and driver's license.

Porsche's program, called "Porsche Passport," debuted in October for Atlanta residents. One option, called "Launch," gives subscribers access to eight models, including the 718 Boxster and Cayman S, for $2,000 a month. A more premium option, "Accelerate," costs $3,000 a month for access to vehicles like the Porsche 911 or Panamera 4S. The plans require a one-time activation fee of $500. By comparison, Atlanta buyers can lease a new Cayman for $597 a month for 39 months, but must pay $1,997 at signing, according to a deal advertised on the website of a local Porsche dealer.

For the subscription program, Porsche partnered with Clutch, an Atlanta-based software provider that specializes in building subscription apps for automakers and dealers. The firm has sold its software to 10 clients across 14 states, says its president, Vince Zappa. Customers include Miami-based Flex Wheels, a subscription program created by the Warren Henry Automotive dealership group. Flex Wheels' website plugs monthly vehicle subscriptions that provide "SUVs for family trips, fun sports cars for date nights, and luxury sedans for the daily commute." Clutch was founded in 2014. "The fundamental question we asked is why can't your car match you life?" Zappa says.

Melody Lee
Melody Lee Credit: Cadillac

Book by Cadillac allows drivers to switch models up to 18 times a year. Via mobile app ordering, a subscriber could get an Escalade SUV delivered to their door one week, and an CT6 sedan the next week, for instance.

"We believe that this is the next evolution of the way that people want to access vehicles," says Melody Lee, a former Cadillac marketing director who took over as global director of Book by Cadillac on Nov. 1. "Just like leasing in the 1970s was this really novel and revolutionary concept, we think subscription is the future. It's happening in every industry and in every vertical for every product that you can imagine."

Still, one analyst gives the upper hand to ride-hailing providers like Uber and Lyft over subscription providers, especially with younger generations.

"As you ask younger and younger people, they prefer to be driven rather than driving," says Alexandre Marian, a director in the automotive and industrial practice at global consultancy AlixPartners. Nine percent of millennials surveyed in 10 major metro areas said ride-hailing has allowed them to postpone or avoid getting a driver's license, according to a recent AlixPartners study.

The ambivalence toward driving could rise if self-driving cars take hold. Under one scenario, ride-hailing services would evolve into driverless robo-taxis ferrying people on their daily commutes for a cheap rate. Ride-hailing "makes it easier to go from your home to your work and not necessarily have to own or purchase a car, which is very, very expensive per mile compared to the cost of ride hailing," Marian says.

Luxury brands are packing their subscription services with perks to keep drivers interested. Cadillac throws in invites to events at its Cadillac House in New York, like tickets to a private concert that Demi Lovato gave in September at the SoHo venue.

Volvo in September launched a subscription program called "Care by Volvo" for its new XC40 compact crossover in several countries, including the U.S. A flat fee covers insurance, taxes and "digital concierge services" like fueling, cleaning and valet pick-up and drop-off for vehicle maintenance servicing. Volvo says it will add more models to the program. The automaker is expected to detail the U.S. offering at the L.A. Auto Show in December.

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