What Do Car Subscription Services Mean for Dealers, OEMs and Consumers?

There’s a huge push going on across the nation for subscription-based vehicle services.

First introduced by manufacturers, more than a few dealerships have rolled out similar services for their customers. The general concept is that a consumer can pay a flat-rate monthly fee to drive a vehicle of their choice. The payment includes everything from insurance to service, including maintenance for most wear-and-tear parts such as tires.

 

Consumers have the option to take the vehicle back to the dealership or manufacturer at any point (depending on the service) and switch it out for another vehicle. For example, suppose the consumer currently drives a sedan, but plans to go skiing or to the lake and needs an SUV for more comfortable travel and to tow their boat. With a subscription-based vehicle ownership plan, they can simply switch out the vehicle and continue making payments.

 

The interesting point here is what does this subscription service mean for the vehicle; what does it now become in the retail world? Depending on the state, when it comes to insurance, the vehicle needs to be titled to the driver. In subscription service cases, most likely the vehicle stays titled to the manufacturer or dealership, but the driver is covered through a special arrangement with the insurance company. When a driver swaps out a vehicle for another one, the previously driven vehicle re-enters the “fleet” of vehicles available for subscribers to choose from.

 

This is the same business model as car rental agencies.

 

Think about it. You could easily go to Enterprise or Hertz and rent a vehicle in perpetuity; or return it at your leisure and rent a different type of vehicle. Assuming you opt-in for the rental agencies insurance, your rental fee covers insurance and, because the vehicle belongs to the rental agency, if it needs new tires or brakes they replace them, not you.

 

So, this brings us to an interesting question: What are these vehicles legally considered? Once they pass from a dealership or manufacturer for the first time, there are just two options in reality: they are either used cars (for the second and every subsequent driver), or they are rental cars. In all practicality, there are no other options.

 

Why is this important? Well, at least one state’s auto dealer association recently banned subscription services (Indiana via House Bill 1195).  In addition, federal law prohibits dealers from selling used cars with open recalls. There is similar legislation that prevents rental car agencies from renting cars with open recalls. I highly doubt that manufacturers will be exempt from these laws, even if they overcome the direct-to-consumer model that manufacturer subscription services mimic.

 

Regardless of how this all turns out, at least one good thing that will come out of it -- for those vehicles included in car-subscription services, recall compliance should greatly increase.

 

Vehicle subscription services are still too new for legislation to have analyzed and caught up with regulators and legislators. However, if ADA’s are opposed to manufacturers “renting” vehicles direct to consumers, fearing it will reduce sales for dealers, it’s only a matter of time before the status of these vehicles as far as “are they used or rentals,” will be answered. And this will only help make the roads safer for consumers.

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