The transportation market has experienced major disruptions in recent years – thanks, in no small part, to the entrance of new business models. It appears subscription- based offerings are the latest to hit that disruption highway.
Rideshare services like Uber and Lyft enable consumers to summon rides via mobile app, while Zipcar and Getaround offer access to shared vehicle options for short-term use. Data on automotive sales indicates that many consumers still want to drive the old-fashioned way, however, by purchasing or leasing vehicles. Automotive research firm Edmunds has reported that nearly 1.5 million vehicles were sold in August 2018, a 10.2 percent increase from the previous month.
Meanwhile, some analysts believe rising interest rates and decreased incentive spending could cause a downturn in sales for the rest of 2018.
Several automakers are now embracing the subscription model to get consumers behind the wheel, granting them access, mileage, insurance and other costs for a monthly fee. The trend is becoming especially common among luxury vehicle makers, including Mercedes-Benz, BMW and Porsche. That market is already strong, and currently forecast to grow 71 percent by 2022.
And the trend isn’t limited to luxury brands. Canvas, Ford’s vehicle subscription service, offers subscribers access to a selection of used Ford vehicles. In a recent interview with PYMNTS, CEO Ned Ryan explained how Canvas’ business model helps fill a gap in the current automotive sales market.
“The two main ways to get into a vehicle today are short term options, like ridesharing or renting by the day or hour, and long term commitments, like leases and loans,” Ryan said. “There isn’t anything in between. We wanted to create a simple and easy way to get into a vehicle somewhere in between those two worlds.”
An On-Ramp to Ownership
Canvas offers subscribers access to Ford’s Focus, Fusion, Escape, Edge and other models, including those in its luxury Lincoln lineup. They can choose the vehicle type, a mileage package ranging from 500 to unlimited miles per month and a subscription term of one to 12 months.
The goal is to provide subscribers with a more flexible way to gain access to vehicles.
“Ultimately, we are trying to create a bundled, simple alternative to longer forms of car ownership,” Ryan said.
He doesn’t view Canvas as an alternative to vehicle rentals, as it looks to stand apart from the vehicle rental market by offering access for longer time frames. The subscription price includes insurance, maintenance, warranty, roadside assistance, vehicle delivery, pickup and registration, among other costs. Subscribers can also exchange vehicles once per month.
“We [aim to] give [them] everything they need to hit the road for a long period of time,” Ryan explained.
A Tale of Two Subscriber ‘Buckets’
Canvas subscribers are often broken down into one of two “buckets,” Ryan added. The first covers those who recently went through a significant life event, users who just changed jobs or moved to a new community and are thus in need of a new set of wheels. Subscribers in the other bucket are more lifestyle-focused. They like the idea of driving their own vehicles, but are hesitant to make the long-term commitment of buying or leasing.
A subscription-based model could help address the void between financing and leasing.
“There’s a sizable population [that] isn’t able to commit to a car long term or doesn’t necessarily need something for the next seven years,” Ryan noted.
Meeting Changing Consumer Perceptions
The transportation market has evolved significantly in the last few years, putting a wide array of options at drivers’ fingertips. Subscription-based offerings allow consumers access to a vehicle outside of rideshare and carshare services. They can also offer lengthier commitments, similar to financing or leasing a vehicle.
“If you think about the evolution of mobility, and the evolution of the way people want to move around, the rise and launch of subscriptions is in line with that trend,” Ryan said.
Consumers who want a quick ride can use Uber or Lyft, but those who prefer to drive their own vehicles often want more flexible access. This creates an opening for services like Canvas to find their place in the transportation market.
“Subscription, more broadly, is launching at an interesting time in the transportation space,” Ryan said. “People’s needs and preferences are changing quite a bit.”
Meeting these changing needs is a key focus as the company works to expand its reach. Canvas is currently only available in Los Angeles and San Francisco Bay, but is working to help additional consumers who want or need alternative vehicle access.
“We don’t view subscription as some novelty,” Ryan said. “It really is a core part of our consumers’ lives.”
The costs and commitments involved in buying or leasing a vehicle cause some consumers to put off ownership, but subscriptions could offer a more flexible shortcut to getting on the road.