Cars are going to begin offering a “subscription” service within the next few years. I’m not talking about Book by Cadillac
which has no chance of going industry wide at $1,400 a month. I think I have made some great progress on a subscription method for new cars so let me post the first stages here for you.
You need 10% of the vehicle’s MSRP in order to begin the subscription. If you are looking at a $30,000 car then you must have $3,000 to become subscribed to the brand for any number of terms.
Your monthly payment is always 1% of the vehicle’s MSRP once subscribed. So a $30,000 car has a monthly payment of $300 no matter the term length. Your term length must be between a minimum of 6 months and a maximum 18 months.
Once your term ends, the down payment for your next vehicle is subtracted from your initial down payment.
This means if your last subscription was for a $30,000 car and your next one is for a $35,000 car then as a returning subscriber you only need $500 down to start the new subscription [$3,500 - $3,000 = $500].
If the next subscription is less than the last one then your subscription account is credited the difference for future terms. So going from a $35,000 to a $30,000 car would get you a $500 credit towards your next subscription or purchase.
Let’s say you want a Cadillac ATS 2.0 with an MSRP of $36,650.
The dealer needs $3,665 down and you are set to pay $366.50 for the next 6 to 18 months (you end the subscription anytime you wish during that period). Payments are handled through the automaker’s finance arm.
The next car you decide to try is an ATS-V for $66,430.
The dealer only needs $2,978 down [$6,643 - $3,665 = $2,978]. Your monthly payment is $664.30.
Next car is an XT5 (you have spawned offspring) for $53,280.
The dealer needs $0 down and you now have a credit of $1,315 off your next subscription fee [$5,328 - $6,643 = -$1,315]. Your monthly payment is $532.80.
Maybe your first car is an Escalade or CTS-V for $96,200. You used a car with a trade-in value of $18,000 to cover the subscription. You now have a credit of $8,380 towards your next purchase [$9,620 - $18,000 = -$8,380]. The car still costs $962 a month
You have had the car for 8 months, you love it, you decide to buy it!
You have paid $7,696 [$962 * 8 months] on the car’s depreciation so it is now $88,504 [$96,200 - $7,696]. You also have a credit for $8,380 you can use so the car is $80,124 for you to buy now. It would have cost you $78,200 if you had of used your $18,000 trade-in from the start so the 8 month subscription cost you $1,924.
If you had of financed that $78,200 car for 6 years (72 months) at an interest of 3% APR you would have been paying $1,188.15 a month. The interest over 8 months on that loan would have been $1,494.17 so the subscription service was really a $429.83 loss in 8 months on a nearly $100,000 car.
The goal is to eventually have a system that can better manage the risk of loans over 72 months while keeping the long term profitability. It also gives automakers control over those initial cars while keeping some level of stability in new car sales as prices increase due to safety and technology. Dealers get returning customers and a great supply of CPO vehicles (so it’s like making money on the same car twice). The used car dealers get a wave of fresh cars on their third owners and that lowers the ridiculous prices we are seeing currently on older used cars. Consumers have simple and consistent numbers to plan for and this constant payment lifestyle is catered to properly. Plus, you encourage brand loyalty and you don’t harm existing leasing and financing structures (I think, I haven’t run them thoroughly yet).
I have a ton more work to do on this still but I’m pretty happy with this foundation to build on and I can create work-arounds as I go through scenarios (usage and insurance namely) until something breaks the system. I’ll update you all if things don’t fall apart or progress more.