The Price of Car Subscription

Car subscription addresses the broadly-reported shift in demand from ownership to car "usage". For a fixed monthly fee, customers enjoy the use of a properly maintained and insured car with very little commitment. As shown in the table below, the product sits nicely between daily rental and the longer-term leases that have come to dominate new car sales.

In earlier articles, I've taken pains to more precisely define subscription. Is it a rolling month-to-month rental or is it a shorter fixed-term lease? More than just semantics, this is an important question as it defines the resources required to provide subscription at an attractive price.

In short, there seems substantially greater opportunity for fixed-term subscription arrangements (say, 9-24 months) of relatively more conventional cars.

Pricing - Whether for month-to-month or fixed-term arrangements, market forces (principally the rate at which used cars de-value in the market) determine market pricing.

  • Month-to-month car subscription (anticipated as the smaller portion of demand) is upper-bounded by prices asked in daily rental.

  • Fixed-term subscription is lower-bounded by the monthly payment asked for longer-term leases.

The chart below compares Drover's subscription pricing with prices asked by the daily rental and leasing sectors (pricing as of February 2021).

For a month-to-month arrangement, Drover's price compares quite favourably with daily rental (note that daily rental pricing can be quite volatile as a function of their dynamic supply/demand perspective).However, such pricing is significantly above that for successively longer fixed-term arrangements.

For these, Drover's pricing drops dramatically before levelling out at anything beyond about 12 months, which relates directly to pricing asked for 24-, 36- and 48-month leases. Not unsurprisingly, Drover reports an average subscription term beyond 12 months with as many as 35% of their customers at the full 24-month term.

Conclusion - The provision of car subscription at an attractive price requires precise definition of the product and of those resources required to deliver. While customers will pay a premium for flexibility (i.e. car "use" over car ownership, etc.), Drover's pricing indicates that customers neither require ultra-flexible month-to-month subscription nor are they willing to pay up to 100% premium for such flexibility. The fixed-term product represents the larger market opportunity.

To succeed in a competitive marketplace, subscription providers must demonstrate excellence in promotional, operational and fleet resources so as to:

  • minimise the acquisition cost of new and nearly-new cars,

  • strictly control operational and promotional costs and

  • maximise values realised on used-car disposals.