I came, I saw, I subscribed.
Written by Alex M., September 2019
In the last twenty years, we’ve gone from popping into Blockbuster and renting a physical DVD to having access to thousands of titles on demand at home and on-the-go. Other industries point to a similar progression: from landlines to smart phones; notepads to smart home speakers; grocery stores to food delivery services; and arguing in person to arguing over Twitter. All have evolved to meet the consumer’s innate desire for an easier and more convenient experience. Yet, when we look at the automotive industry relatively little seems to have changed over that same period. Hours of online research leads to a trip to the dealership, followed by an unbearable few hours at the DMV, further accompanied by hours spent researching insurance. Finally, you’re left with a bank account that looks seriously depleted from a down payment and a bunch of fees you didn’t know existed.
Here at Canoo, we believe there’s an intentionally different, better way.
Lease vs. Own vs. Subscribe
Let’s start by looking at the three options that currently exist for acquiring a vehicle: Leasing, buying or renting.
A lease is a time commitment, meaning you’re locked into a contract for two to four years with significant penalties for cancellation. Buying is a monetary commitment, where you legally sign to pay the entire vehicle price over a set number of years. Renting provides flexibility, but you likely can’t get the car you want, and anything longer than 30 days is going to get seriously expensive. Universally, these options still involve an unsavory and time-consuming “buying” process, do not include anything substantial beyond the vehicle itself, and come with a host of fees, taxes, and convoluted pricing mechanics that lead to the consumer paying a lot more than they thought they would in the first place.
Imagine a world where, for one all-inclusive monthly payment, you get your own vehicle, charging, routine maintenance, and all vehicle registration and licensing fees taken care of. Once you have the car, keep it for as long as you want. And once you’re done, simply return the vehicle and walk away.
Let’s look more closely at the benefits of this model:
- Simplicity — You deal with one touchpoint for all vehicle-related products and services. No need to manage insurance, repairs, chargers, etc. All are managed through the subscription and handled on your behalf.
- Transparency — One monthly payment covers everything. There are no hidden acquisition fees, taxes, bank fees, disposition fees, or the like. The price you see is the price you pay.
- No commitment — Sign up and stay for as long as you want. Cancel or pause at any time.
- Seamless experience — A subscription eliminates the time-consuming process of visiting a dealership, dealing with salespeople, going to the DMV to register, and handling routine repairs and maintenance yourself.
Do You Know Your TCO?
Insurers, logistics providers, OEMs, the government and dealerships all contribute to your total cost of ownership (TCO). This is probably the most important figure in auto cost that nobody considers. But let’s take a real-life example; a recently advertised lease deal for a typical luxury compact SUV. $429/month for three years. Sounds like a pretty good deal for a premium car, but let’s do some digging.
- Required down payment of $3,925 (covering vehicle deposit and acquisition fees)
- Insurance of $2,160/year
- Title, registration, and licensing fees totaling $300
- Another $150 due at signing for misc. fees
- A $350 disposition fee at lease end
- Assuming you are driving the car, you will need gas. Let’s be conservative and say $2,000/year.
- And still assuming you are driving the car, there is some likely repair or maintenance work done over those three years. Or at the very least, some end-of-lease charges because the paint is chipped and one of the rims is scratched. Add an extra $1,000.
Add it all up and over the 3-year period, your costs are $33,649. Or an average of $934/month. That is more than double the advertised monthly price. Automakers and the auto industry have made a killing for decades by understanding this optimal pricing mechanic. Advertise low and hit the consumer on the back end when they are already invested in the process. The real losers here are the consumers who, understandably, don’t think about or want to think about all the associated costs of owning and operating a vehicle. That’s why we created a subscription, so you don’t have to.
A Better Way
If it’s such a good idea, why has no one done it before? Actually, a number of OEMs have launched their own subscription services, but many have struggled to catch on. This can be attributed to a lack of serious marketing, a “premium” focus that results in very high pricing, and a continued reliance on dealer networks. On the other hand, let’s look at why a startup automotive company is well-positioned to launch a subscription:
- They can leverage a direct-to-consumer (DTC) model that is now commonplace across countless industries from hi-tech to fashion to healthcare and more. Incumbent OEMs have established relationships with dealers and cannot, legally, circumvent them.
- New entrants have no established vehicles in market, and therefore, no secondary values. This means they don’t stick the consumer with the cost of the dreaded accelerated depreciation of cars, where a vehicle normally loses 50% of its value over 3 years.
- They can operate under a longer time horizon than big, publicly traded companies who have quarterly earnings reports. A subscription model, as some quick “napkin” math could tell you, requires a longer payback than a lease or purchase, so big OEMs are hesitant to depress near-term earnings. Even though, over a long-term horizon of 5+ years, the model is highly cash flow positive.
None of this is to say that launching a subscription in the automotive industry, either as a new name or an incumbent, is easy. The model is unproven and creates logistical and cost issues for the provider. Nevertheless, in an industry that has become complacent and reaped the benefits of high barriers to entry for decades, we think it’s long overdue.
It’s a vastly better solution in a world that previously had no alternative, and we’re excited to build it for you from the ground up.