It used to be that the only way to drive off the lot in a new luxury car was to throw down a hefty down payment, shell out for the sales tax and then sign a stack of papers promising to make some high monthly payments as well. Then, and only then, could you pull up into your own driveway, revving your engine and basking in the long, envious looks of your neighbours.
But as with so many other facets of daily life, time has modernized and improved the process of getting a car. Some 80 years ago, an ingenious and enterprising young Chicagoan came up with the novel idea of used car leasing. Suddenly, you didn’t need a prerequisite stack of cash in order to drive off in an amazing car, nor did you need to worry about a lump sum sales tax, or eating the full cost of depreciation.
You could simply lease a car in Toronto (or wherever you called home) and drive it as though it was your own. Sure, you were tied to a single car for a few years, and you had some bureaucratic hoops to jump through, but it was still an improvement.
Jump ahead 80-odd years and along comes the car subscription. AUTO ONE Group – a preeminent used car leasing company, and now the first dealership in Canada to offer the progressive new service, rolled out our car subscription service just last year, after listening to the needs and input of our customers. Called AUTO ONE Drive, the service addresses some of the issues people had with leasing – namely, the length and inflexibility of the terms, and the surrounding process.
In short, car dealerships have come a long way in the past century, and savvy drivers now have two fantastic options to choose from when they shop for a car. In the interest of breaking down those options, we would like to offer this article. In the following comprehensive guide, we’ll look at car subscriptions – the definition, the history, the benefits and uses – and compare it to used car leasing. That way you, the consumer, can make the most informed choice possible.
What Are Car Subscriptions?
It’s been called “no hassle”, “low commitment” and “Netflix for cars”, but what exactly is a car subscription service, and how does it work? Here at AUTO ONE Group, we like to say that it’s a cross between leasing and car rental, but with the best elements of both.
Essentially, how it works is that you download the app (look for Drive in the Apple App Store, Google Play, or wherever you get your apps!), and then sign up for the service. After a brief approval process (we’re talking less than a minute here) you’re all ready to go.
You simply pick which car and plan works best for you, and then it’s yours to drive month-to-month. At the end of each month, you have the option to either renew or swap your vehicle, or, if you so choose, you can cancel your subscription, temporarily or permanently. It’s a roundly customizable service that lets you drive what you want, when you want, for as long as you want.
Roadside assistance, maintenance and a set number of kilometers are included in each plan, meaning you only ever have to worry about that one, combined monthly price. No replacing parts, signing up for CAA or fretting over the distance you drive. It’s all included. We’re also working on including attractive insurance coverage so you have everything in one easy, simple payment plan.
The History of Car Subscriptions
In the context of automotive history, the concept of car subscriptions is merely a baby. 2014 is generally considered the year when car subscriptions broke onto the scene, thanks largely to an Atlanta-based start-up company that ran with the idea.
At the time (and to this day, really) a buzzword among business analysts and pundits was “the Subscription Economy”, coined to describe the phenomenon of companies like Netflix, Dollar Shave Club, Hello Fresh, Spotify, etc. Car subscriptions took that ethos and adapted it for the automotive industry, creating a flexible monthly subscription service that benefited drivers who wanted a low monthly price, but were averse to long commitments.
AUTO ONE Group is one of the pioneers in the history of car subscription in Canada, having been the first dealership – and the best, obviously – to bring the service to Canada. Last June, riding a wave of excitement drummed up by a glowing Globe and Mail article, we launched the service, and made our small mark on history.
The history of car subscriptions is a short tale, but judging by the amount of engagement and positive feedback we’ve seen in the wake of introducing AUTO ONE Drive, we are certain that there is a long history ahead for the service.
5 Ways to Use A Car Subscription Service
1. As a Flexible Lease Alternative
One of the primary ways you can view a car subscription is as a flexible alternative to leasing a vehicle. You can still keep the car you want for months, even years, at a time, but instead of being locked into a contract with a 3-5 year term, you opt to go month-to-month with the vehicle.
Put it this way: if you have Netflix, chances are you will have it for the next three years, but you don’t necessarily want to lock yourself into a three-year contract. What if you end up traveling for a period of time, or get bored with Netflix’s content? The month-to-month model takes the commitment out of the service, allowing for flexibility.
2. To Drive All the Hottest Cars
Of course, you could treat a car subscription service like your own personal automobile buffet. Why have the same car for seven years (as with buying) or 3-5 years (as with leasing) when you could be driving a hot new car every single month of the year? For gearheads and car fanatics, a car subscription service, where you can swap vehicles on a monthly basis, can be a great way to shake things up and test new cars. Just don’t be surprised, after bringing home a different car every month, when your neighbor shoots you a puzzled look!
3. For a Seasonal Mode of Transport
According to the Government of Canada, the number of “snowbirds” – that is, Canadians who travel South during the winter to avoid the cold – continues to grow year after year. Whereas before, snowbirds (or any seasonal traveler, for that matter) had to leave a car behind to collect dust. With AUTO ONE Drive, they gain access to a seasonal mode of transportation which can potentially save a lot of money. It doesn’t make sense to house a car that you’re only going to use half the year.
4. As a Contract Worker
At AUTO ONE Group, we’ve met a lot of people who travel for work, some of whom stay for an awkward amount of time – four or five months, let’s say. That’s too short for a car lease, but if you were to rent a car for that amount of time, you would be paying an exorbitant amount. Car subscription services allow you to pick up a car when you arrive in town, and drop it off before you leave, all for an easy, affordable monthly payment.
Even contract workers based in a single city might only need a car some of the time. The Greater Toronto Area, for instance, is a vast place. Say you lived downtown but picked up a six-month contract in Burlington – you would all of a sudden need a short-term vehicle. All you’d need to do is download the Drive app, sign up in seconds, and your problem would be solved.
5. For Changing Needs
That two-door speed-demon might be good for you and a partner, but what happens if your family grows, perhaps unexpectedly? The passenger seat of a sports car is no place for a child’s car seat. For all your changing needs, a car subscription service has got your back. If you have kids, if your kids leave for college, if your kids come back for summer holidays… however many people you need to accommodate, just choose your perfect car on the Drive app.
More Benefits of Car Subscription Services
It’s Easy and Fast to Join
One of the greatest benefits of a luxury car subscription service like AUTO ONE Drive is how simple it is. Whereas other forms of financing might require you to sign paperwork and make phone calls to the bank, a car subscription service just requires a few taps of your thumb on a mobile device. You could literally do it in the time it would take to read the first page of a lease contract. For drivers who like their services as fast as they like their cars, AUTO ONE Drive is for you.
Approval Is a Cinch
If you’re over 25, with a clean driving record, a valid credit card and a good credit score, approval is quick and easy. You don’t have to come down to the dealership, nor do you even have to leave your couch!
Maintenance Is Taken Care Of
People who buy their cars spend so much time worrying about maintenance. Every clank, every exhaust grumble, every strange squeak coming from under the hood is cause for concern. All of a sudden, you could be facing a repair bill in the thousands. But car subscription services include maintenance, as well as roadside assistance, so you never have to worry about your car bankrupting you. All of our cars here at AUTO ONE Group are impeccably maintained to begin with, so it probably won’t be a problem anyways!
One Simple Payment
Forget juggling a number of different bills. Your car is one thing, and it should come with one bill – end of story. Car subscription services handily combine the costs into an easily digestible, always consistent monthly payment. You always know how much your vehicle is going to cost you this month, so you can budget around that amount.
If you really like your subscription vehicle and want to keep it and save some money – now’s the time to lease it.
What Are Car Leases?
Car leases are a pretty straightforward alternative to buying a car. With car buying and a car loan, you put either a predetermined or (roughly) 10% down payment on a car, only to follow that up with monthly payments for up to 7 years, until the vehicle is fully paid off; with leases, you only have to worry about the monthly payments, and they are more affordable, at that.
This is because, rather than take ownership of the vehicle, you are taking ownership of an amount of time with the vehicle. The lease is calculated according to the amount of depreciation the vehicle experiences during the lease term, as well as its overall value relative to the term. If you decide to buy the car at the end of term, or trade it for a new one, any equity value would be applied to your next lease (just as if you owned it!). Of course, if you abused the car than the loss on the sale would also be just as if you owned it.
This allows you to a) drive a better car than you otherwise would if you bought, b) pay less monthly, freeing up cash flow, and c) lease a new luxury car every few years. Also, if you’re a business or self-employed you can write off up to $800 per month, a much higher deduction benefit than if you bought the vehicle.
Overall, leasing provides these benefits:
- Upgrade your vehicle with no worries
Taking advantage of lower monthly payments allows you to drive more car, more often. Many of our customers happily upgrade their vehicles every 2-4 years.
- Less depreciation in your vehicle
A purchased or financed car depreciates the most in its first year on the road. Lease a car in Toronto, Vancouver or Halifax and avoid that problem!
- Better tax advantages
Considering the option to lease a car? Only pay taxes on the monthly payments as opposed to paying taxes on the on the full price of the vehicle. This adds up to significant savings.
- More flexibility compared to financing
One of the best parts to car leasing is that you have great options at the end of your lease term. Leasing a car in Toronto, Vancouver or Halifax needs to be easy, flexible and painless.
The History of Car Leasing
As mentioned in the intro, car leasing all began around 80 years ago when a savvy Chicago businessman decided to offer leases at his Chevrolet dealership. Frank Zollie didn’t invent the idea of leasing, but he is widely regarded as the first person to apply the concept to cars. Leases have existed for a very long time – whether it was in ancient Sumer, where lessors allowed farmers conditional, temporary use of farm equipment and cattle, or in Industrial Era America, when leasing became a popular form of landholding in urban centers.
Zollie saw that too many people were being priced out of buying a car, just as urban landowners were priced out of landholding a couple centuries earlier. Instead of simply targeting the wealthy class that could afford to buy cars, Zollie sought to broaden his consumer base to include any household that could afford a consistent monthly payment. Apparently, the novel idea caught on like wildfire, first in North America, then in Europe, and finally worldwide. If it weren’t for Zollie, who knows if AUTO ONE Group would be here at all!
5 Perks of Car Leasing
1. You Can Lease to Own
In much the same you can tailor a car subscription to act as a lease, you can tailor a lease to eventually become ownership. Because you essentially prorate a portion of the car’s value over the course of the lease, you have the option of buying out the rest of the value when the lease term is over. This is great for someone who wants to own a luxury car, but can’t afford to buy right now; they can lease on a low monthly payment for a few years, saving up simultaneously, and then buy the car.
2. You Don’t Need a Down Payment
One of the trickiest financial maneuvers in car ownership is putting together that initial down payment. You’re looking at thousands of dollars upfront, just for the privilege of paying a higher monthly price. And for what? To own a depreciated vehicle for a few years longer? We understand the emotional appeal of ownership, but leasing just makes good financial sense.
3. You (Or Your Business) Can Free Up Cash Flow
If you view a vehicle as a functional way of getting from point A to point B daily, and less like a darling possession, then leasing is the way to go. Its lower monthly payments and lack of down payment allow you, or your business, to free up all-important cash flow. That is cash that could be spent on other essentials, on expanding a business or – better yet – invested, reinvested and earning some serious compound interest.
4. Drive a New Car Every Few Years
In the sections below, we’ll start comparing the benefits of car subscription services and leases, but for now, let’s talk about leases relative to their main competitor – buying. Whereas buying saddles you with a car for an average of seven years (that is, if you want to get the most bang for your buck), car leases are normally around two to four years. What that means for car lovers is that you can drive the most up-to-date cars. Vehicle manufacturers these days make considerable annual upgrades, and leasing allows you to enjoy those upgrades more frequently.
5. You Can Afford a Finer Car
That’s the bottom line for many people: if you walk into a car dealership looking to buy, you’re going to have to settle. If you walk into a car dealership looking to lease, you will be pleasantly surprised with what you can afford. Especially with previously owned vehicles, whose initial spike in depreciation has already passed, you can afford a much finer car than you could’ve ever imagined.
Comparing Car Leases to Car Subscription Services
If you are someone that values convenience, who goes cross-eyed at the prospect of having to sign a stack of lease papers, then consider a car subscription. A lease requires you to do proactive research (after all, if you’re going to have a car for 2-4 years, it can’t be just any car), sign papers and perhaps even get a credit check.
Car subscriptions are as easy as rentals, pretty much. A short approval period, a few taps of your thumb on a phone screen, and we’ll arrange for the car of your choice to be delivered to you. As we mentioned above, you can get a car on a subscription service in the time it would take to drive down to the dealership to sign ownership papers – less if there’s traffic!
Winner: Car subscription services
If you’re a steady, static kind of person, who knows they will be in the same city, with the same family situation and the same taste in cars for the next two to four years, used car leasing is a fantastic option. Leasing also provides flexibility to switch cars and move financial equity from one vehicle to the next. For everyone else, car subscription services offer an even greater amount of flexibility.
With the option to renew, swap or cancel, car subscription services allow you to reevaluate your needs and wants month-to-month. For a low-commitment way to drive a car you can be proud of, learn more about what makes car subscriptions so special.
Winner: Car subscription services
While both these options beat buying, there are some differences in price between leasing and car subscriptions. With leasing, because you are prorating a percentage of a car’s value over the course of a few years, the monthly payments are lower than financing alternatives. When going month-to-month on a car subscription, you pay a bit more to cover the administrative, maintenance and additional mileage (if you go over the limit) costs attached to that flexibility.
It’s not a big difference, and if you only plan on using a car part of the year then subscribing is still the economical choice. That said, used car leasing has an edge in lower monthly cost.
Winner: Car Leasing
Who Should Lease?
Flexibility and ease don’t mean as much to you as having a consistent, low monthly price. You know what car you want for the next couple years, and you don’t anticipate that opinion changing. You like the idea of “getting to know” a car, having a single vehicle as a constant presence in your life. Buying sounds like a fine option, but you want a slightly better car than you could afford to buy.
Who Should Join a Car Subscription Service?
The only thing holding you back from driving your dream car is the prospect of having to sign away your life for the next few years. You want things to be quick, easy and flexible enough to suit your lifestyle. You might not want a car year-round, and don’t like the idea of letting an expensive investment gather dust in your garage. You love cars, and want to drive as many amazing cars as you humanly can.
The automotive industry has come a long way since the old days when purchasing was the only option. Drivers now have two fantastic alternatives to consider, one that allows you to make low monthly payments in exchange for a few good years with a car, and another that allows you the freedom to drive whatever you want, whenever you want. Either way, you get more mileage for your buck.
AUTO ONE Group is proud to offer both these options, a first for savvy Canadian consumers. While we are still staunch believers in the benefits of used car leasing, we are also immensely proud of the consumer-focused car subscription service that we offer. Whichever way you choose, you can drive happy knowing that you got an awesome deal on a great vehicle.