When it comes to getting a new car, buying either new or used, or leasing, is the way that the vast majority of Americans go. Both routes have their share of pros and cons. Buying a vehicle allows you to work toward something that you’ll eventually call “yours” after you pay off the loan. However, you’re on the hook for the maintenance and repairs, especially considering that you’ll likely own the vehicle after it’s out of warranty.
Leasing, on the other hand, means you’ll drive a brand new vehicle and then turn it in after 12, 24 or 36 months. Because the vehicle is brand new, it’s likely to need little maintenance. However, you’ll always have a monthly lease payment to make for the duration of the term.
Porsche is shaking things up when it comes to vehicle ownership. While the luxury automaker still offers leases and purchase plans on its vehicles, its monthly subscription-based service is what’s really making waves in the auto industry.
Under this subscription-based system, Porsche drivers can swap out one Porsche vehicle for another any time that they choose. Mileage is unlimited, and the monthly fee of either $2,000 or $3,000 for one of two plans also includes any maintenance. It’s a business model that’s working for Porsche (the company’s market value has risen 42 percent to about $24.5 billion), and it could revolutionize somewhat stale automotive sales lately. For reference, auto sales were down about 2 percent in 2017, and 2018 isn’t off to a great start.
Inside the Porsche Subscription-Based Model
Like we said in the opening, Porsche drivers can decide between one of two subscription packages — a $2,000 monthly fee, or a $3,000 one. The big difference between the two packages is that the $3,000 one allows drivers to chose from up to 22 Porsche models to swap, while the $2,000 package is a little bit more limited on vehicle selection. Both packages include unlimited mileage, maintenance, tax, registration and insurance.
The program works via a smartphone app, which allows users to schedule car swaps and coordinate other activity. Yes, the price point is significantly more than it would cost to lease. It’s also more than a typical monthly payment would be on a financed vehicle loan. But, as Porsche’s numbers indicate, there’s somewhat of a demand for the flexibility of a month-to-month membership service such as this. And at any point it’s not desired any more, users can just simply cancel it.
It’s a neat, innovative initiative. But there’s one aspect of the Porsche program that’s very significant as it pertains to auto sales: executives say that more than 50 percent of the subscription users are drivers who are new to the Porsche brand. Yes, the business model is growing the brand by bringing in new drivers that otherwise might not have even batted an eye at a Porsche.
Moving Toward a New Norm?
That’s the million-dollar question, and certainly other automakers are paying attention to the success of Porsche’s subscriber program. Volvo and Cadillac offer similar programs of their own, and Mercedes-Benz is soon to follow suit. But there’s one big question to consider when weighing whether or not this type of system would work with all other brands: is the draw there?
One of the reasons this type of program likely works for the Porsche brand is because the automaker makes luxury, sporty vehicles that are desirable. So, in order for this to work with other automakers, they too need to have the same appeal among its vehicle lineup that Porsche does. That’s likely going to be difficult to duplicate in that aspect. It’s not that other automakers aren’t creating quality vehicles, it’s just that they’re likely lacking the appeal of Porsche’s full vehicle lineup. Of course, to make it more appealing and competitive to Porsche, other automakers could offer cheaper subscription-based services.
There’s reason to believe that this type of model has legs, especially when you consider the sluggish sales numbers lately from other brands.
Regards,
Ethan Warrick
Editor
Wealth Authority
