A new era for car ownership is emerging and at Wagonex, we are pleased to be part of the movement towards a future where cars are a service, rather than owned.
At present, there are three ways in which someone can ‘own’ a vehicle — and when we say own, this term is meant loosely as when purchasing through a finance option from a car dealership, a vehicle is never truly owned.
Hire purchase requires you to pay a deposit of around 10%, although this figure varies, and the balance is paid in instalments (plus interest) until the loan period has ended — after which, the car is owned outright.
Personal contract purchase (PCP) involves paying a large deposit, followed by monthly instalments over a set period — at the end of this there is the option to either pay what is known as a ‘balloon payment’ where the remainder of the loan is paid off so that the car is owned outright or you hand the car back and walk away. PCP agreements often have punitive mileage limits in place which need to be adhered to or you suffer additional charges, and the agreement is subject to a future guaranteed value of the vehicle, which can vary over time particularly when you come to the end of the term, usually three or four years.
Personal leasing is similar to PCP, however there is no option to buy the car in the future. Similar to PCP, there are agreed mileage limits in place with additional charges should you go over. Minimum three months’ worth of your agreed rental price is required in advance and you are tied into the car for the entire term (typically two or three years) with strict and expensive conditions should you wish to cut the term short.
As you can see from the above purchasing options, each presents itself with a negative element for the customer. From high-interest rates, selling a car cheaply when switching, incurring additional mileage costs at the end of a lease and many other pain points — the customer is presented with difficulties whichever purchasing avenue that they choose. And this is without mentioning the additional costs which are associated with car ownership: insurance, breakdown cover, servicing and maintenance.
New services
Alongside the frustrations being felt by customers, there is the shift in car technology and the services that people are using to get from a to b, and the impact that this is having on ownership. Services such as Uber have digitalised the taxi service, allowing users to hail a vehicle, share a lift, split a fare and pay through an app — and with digital services becoming more prominent in consumers lives, they have become accustom to an on-demand service. Then there’s BMW whose DriveNow programme based in London, allows users to pay from as little as 33p per minute to use one of over 300 vehicles which are based around the city.
According to Experian, cars are replaced every six months, but with autonomous vehicles designed to be easily upgradable or with infrastructure which is more replaceable, companies are set to no longer be able to reply upon customers replacing their vehicles so frequently.
A recent study found that 74% of car executives believe that more than half of car owners today would not want to own a car in the future. With others such as Ford’s Smart Mobility boss, Richard Balch stating that millennials, in particular, are set to be the biggest disrupters in terms of car ownership, as they often don’t feel the need to own everything.
Mobility is becoming increasingly prominent and important in day-to-day lives. Cars aren’t necessarily a requirement for people year-round — they may work abroad part of the year or travel internationally frequently meaning that a vehicle would likely sit redundant for large spans of time. Or there are those who have unexpected occasions come their way and need to get out of a leasing agreement quicker than they thought — for example, say a sports car needs to be changed to something more accommodating for a family, if a user is tied into an agreement this may not be possible. Perhaps a car is only required on weekends, and it’s an expense which will be wasted weekdays. Mobility is a key part of the movement that we are seeing towards a future where cars are no longer owned, and where they are used as a service.
Cars on subscription
The subscription economy has transformed several industries, and with the car industry on the cusp of a big change also, it seemed fitting that this model could too work for vehicle ownership. As we mentioned earlier, there is no longer a need to ‘own’ a car, and many are looking to find ways where they don’t need to make a long-term commitment to a vehicle. Life changes, and being tied into a vehicle simply doesn’t make sense for many.
US companies such as Cadillac have already begun rolling out car subscription services, and it has become time for the UK to follow suit. With Wagonex, we believe that the subscription model has the potential to address the issues customers currently face and provide them with an opportunity to free up the time and money currently associated with owning a vehicle at present, and create a service where cars are no longer a burden.
