Subscriptions. Gimmick or the Future? Or Both?

Auto industry analysts have used a lot of ink and electrons reporting on subscription programs. Facially, they are attractive. Pay a flat monthly fee, and drive what you want when you want it, maintenance included.

When one digs deeper however, subscription programs raise numerous issues, particularly under state law.

  • Are subscriptions cost effective? Typically, subscription programs are expensive, and for good reason. A subscriber may want a minivan to take the kids to school and run errands, but replace that with a luxury SUV for a weekend ski trip, and a hot, luxury convertible for a weekend trip to the beach. This flexibility is costly. In experimental subscription programs rolled out to date, monthly fees have dwarfed lease or purchase costs making the programs luxuries for well heeled drivers willing to pay for flexibility. OEMs offering the programs have had to rethink them, including Cadillac, which depending on news source, has either decided to restructure its program or end it.
  • How to handle vehicle turn? The challenges presented by seasonal consumer interest make vehicle availability challenging. Drivers who can afford a subscription are likely to be on the same calendar – all wheel drives in the winter, convertibles in the summer, 8-passenger SUVs during school terms and sports seasons. Consumers will likely demand the same types of vehicles simultaneously. Juggling the subscription fleet with similar vehicle demands will be difficult – and costly.
  • How to control costs? The problems of vehicle turn and downtime will contribute to unattractive high prices of subscriptions. Customers will want to drive the hottest, most expensive models. The downtime occasioned by seasonal and cyclical demand can lead to difficulty in meeting consumer demands, and at other times substantial vehicle downtime. All these factors will exacerbate the price of subscriptions, rendering them affordable only to the highest income drivers willing to pay for flexibility.
  • What is the legal status of a subscription? Under most state laws, one either buys a car, leases a car, or rents a car. One must try to slot the square subscription peg into one of those round holes. It is unclear how a state will treat participation in a subscription plan.
  • How is the right to drive the vehicle documented? Accompanying the legal limbo of a subscription is the difficulty in documenting the right to use a vehicle. Does one buy an interest in a vehicle, or is the subscriber leasing an interest, or is it a short term rental?  How is the right to drive documented? If the subscription program does not provide insurance coverage, what type of coverage must the subscriber provide?
  • How is the customer’s interest in the vehicle or fleet taxed? Is the taxation upon sale of the vehicle, or is it taxed like a lease? Is the use of the vehicle subject to a rental tax?
  • How is the subscription advertised? Clearly, subscription service providers will want to advertise that a subscriber can drive new cars. But is a vehicle new once it is titled to the subscription service? If the title is issued, the vehicle is no longer new. So how does the subscription service advertise the vehicles?
  • How are subscription vehicles distributed? How does distribution of the vehicles under the subscription program take place? Does it go through a dealer or not? Under Virginia law, distribution through subscription services is covered by state laws limiting how an OEM can distribute vehicles.

As you can see, subscription services create far more questions than they answer, and one must question their economic viability. But does that mean the demise of all dealer subscription services?

Probably not. Some dealer groups have been experimenting with subscription services, and they may come up with a recipe to make it work for them. More important, however, subscription services, in the context of individual vehicle operation, may not be attractive to a large part of the driving population. However, subscription services may be the answer whenever, in the far off future, autonomous vehicles are truly functional. The dream of OEMs is to have subsidiaries that will own the pods that will pick up passengers, ferry them to their various destinations, and be available for autonomous use 24 hours a day. Under those circumstances, where the model, equipment, and drivability are unimportant, a subscription service may work.