Automakers test subscriptions to attract new consumers

Ian Thibodeau
The Detroit News
This 2017 photo shows Canvas' first subscriber, James O'Connor, sitting in his car from Canvas. The company offers a variety of used, once-leased Ford and Lincoln models as subscriptions that cost anywhere from $379 per month (for a Ford Fiesta subcompact) to $1,125 per month (for a Lincoln Navigator luxury SUV).

After three years in Los Angeles without a car, Ambika Leigh needed some wheels for at least a couple of months.

She didn't want to buy or lease anything. She needed a short-term fix, so she signed up for Ford Motor Co.'s Canvas, a monthly subscription service. Leigh's been traveling the country since June in a used 2015 Ford Escape she pays $650 a month to drive after a brief stint in a subcompact Fiesta.

"I needed total flexibility," Leigh, 41, told The Detroit News from Eugene, Oregon, in a telephone interview. "I didn't know if I might need a car for two months, three months, then not need that car anymore."

Leigh is part of a small demographic of U.S. buyers with whom automakers are testing a new ownership model. Ford, BMW, General Motors Co., Mercedes-Benz, Porsche AG, and Volvo Cars all have subscription options that essentially allow consumers to pick a vehicle, and swap it after a month, or two, or six for another.

The services are currently available mostly in populous U.S. cities, places where a higher concentration of people like Leigh don't own or lease vehicles but might need one occasionally. Only Volvo offers the service nationwide. BMW currently offers the service in Nashville; Cadillac, in Dallas, Los Angeles and New York City; Ford, in Los Angeles and San Francisco; Mercedes, in Nashville or Philadelphia; Porsche, in Atlanta.

Subscribers typically have access to a selection of new or used models that in some cases can be swapped out at will. Others require users to keep a car for a month or two before swapping. The services are billed as easy-to-use alternatives to buying or leasing vehicles, something they say the coveted millennial demographic wants.

But subscriptions are often more expensive than a lease, with monthly costs approaching $3,000 in some cases — though that includes insurance, maintenance and mileage fees. That has some industry experts skeptical. Others say subscriptions could be a boon for automakers that will have to deal with an influx of off-lease vehicles heading back to dealer lots in coming years.

"We’re not saying there won't be demand," said Jeremy Acevedo, manager of industry analysis with California-based Edmunds. "But at the price they’re charging now, we don’t expect this to move the needle at all. There's a small subset of people who might be involved in payments that high. They're targeting a small niche."

It's still the early days, automakers say. And they're devoting time and resources to build out a program to target that niche and learn a bit about what buyers might be looking for in five, 10 or 20 years.

Edmunds' analysis found the number of subscribers typically numbers in the hundreds. While the services bundle insurance and service into a monthly fee, a majority of consumers aren't willing to pay at times double or triple what a monthly car payment would cost to have their pick from a lineup of vehicles each month.

Ford and Volvo have the lowest-price options. Volvo gives subscribers the choice of a new XC 40 or V60 for a starting fee of $500, and a monthly cost of between $650 to $750. Every plan includes a Liberty Mutual insurance policy and requires subscribers to use a vehicle for a year before they can swap.

Ford through its Canvas service offers used Escapes, Explorers, Focuses, Fusions, MKCs, MKXs, MKZs, Continentals or Navigators for monthly prices ranging from $400 for a small car to more than $1,000 for a Navigator. Subscribers can swap cars at any time for $99.

The longer the subscription, the lower the premium the user pays on top of the rental fee. If you plan to drive the vehicle more than 500 miles in a month, you pay. Unlimited miles costs another $100 per month.

BMW charges a $575 starting fee and tiered subscription packages that range from $1,100 a month to $2,700 for access to different tiers of vehicles, including the M4, M2 Coupe, 540i and the X5 M. Each vehicle would have to be leased for 30 days. 

Cadillac's Book by Cadillac service charges $500 to start, and an $1,800 monthly fee for access to the ATS-V, the CT6, the CTS, the Escalade and the XT5. That service allows 18 swaps per year.

Only Ford is churning used vehicles through the service.

Leonard Ferguson, Ford Credit vice president of mobility and fintech, said that's a win-win for Ford: "They're off-lease vehicles, so they're more affordable. It's attracting new users to the Ford brand."

Ford and GM specifically have a tougher time selling on the coasts, where premium vehicles reign, than in the American heartland. Subscriptions could help the automakers gain valued exposure to customers in California and New York, two areas in which the automakers currently offer the service.

Ferguson said Ford's December 2016 acquisition of Canvas — and the industry's general budding interest in subscriptions — was born out of deep research that showed people, particularly millennials, were looking for ease of use. 

Acevedo and Michelle Krebs, director of automotive relations with Atlanta-based Cox Automotive, say new consumers are becoming steadily more used to subscribing to things rather than buying: take Apple Music, Spotify, Netflix, Hulu or any number of bike sharing service budding in big cities.

Consumers' infatuation with those services is fueling the slow push to build out subscription models.

"We think there's a lot of potential," Krebs said. Cox Automotive recently acquired Clutch Technologies, a platform for subscription access for the automotive industry. Cox Automotive officials have said they're "bullish" on the future of subscriptions.

At the very least, subscriptions could stick around as a third option for consumers at the dealership. Operating in a niche will help automakers learn from customers they typically wouldn't have access to, Krebs said.

"It's a different demographic in that they're younger, a little bit more affluent, and they have higher FICO scores," Ferguson said. "What we're seeing is flexibility attracts people to the service. They need a vehicle for one month or six months. If we weren't doing this, we wouldn't be learning at the rate we're learning today."

They're learning from people like Leigh. She drove a 2002 Volkswagen Beetle before getting rid of it in 2015. She's not a "car person," she said. And the only reason she found Canvas was because she searched the right keywords on Google.

She'd only intended to use Canvas vehicles for a month or two to get around Los Angeles while apartment hunting. Leigh signed up for 12 months. She doesn't need to rent a car during each of those months but would have to pay at least $50 to keep the account open. Leigh currently pays around $650 per month for her Escape with unlimited mileage.

She's had plans to travel the country for a while. And she intends to stay with Canvas because she can ditch the car whenever she wants over the next year without penalty. And she doesn't have to try to sell a used vehicle or wiggle out of a lease.

"I have no interest in owning a vehicle," Leigh said. "This is ridiculously easy. They come right to your door when expected. I think I'll have the car for a while."

Twitter: @Ian_Thibodeau