How does motor vehicle subscription work?

The development of motor vehicle subscription in Australia has been a relatively recent phenomenon, but it has quickly gained popularity among car buyers and sellers alike. Motor subscription is a new way of accessing a car, in which customers pay a monthly fee to use a vehicle for a specified period, instead buying it outright or leasing. This model allows customers to switch between different vehicles and avoid the long-term commitment of traditional car ownership.

The concept of motor subscription first emerged in the United States and Europe, but it has since made its way to Australia. And today, several Australian car manufacturers and dealerships are offering this service.

The rise of digital platforms and mobile apps make it easier for customers to find and subscribe to a range of services, motor vehicle subscription is just one of the new kids in the game. These platforms allow customers to browse a wide selection of vehicles and compare different subscription plans, making it simple and convenient to find the a car that ticks all their boxes.

What is driving the growth of motor vehicle subscriptions?  

Pardon the pun, but there are a few factors driving the growth of motor vehicle subscriptions, including:

• ‍Changing consumer preferences. People simply want more flexible and convenient way to access motor vehicles. Many Australians are looking for ways to avoid the traditional hassles and costs of car ownership, such as maintenance, insurance, and depreciation. Motor subscription allows customers to access a wide range of vehicles without having to worry about these issues.
• ‍Uncertainty. People are concerned about how electrification and or energy sources will impact on the economics of traditional vehicle ownership into the future. This economic uncertainty, along with rising inflation and interest rates, has many people cautious about purchasing vehicles outright.
• ‍Supply chain shortages. The impact to supply chains around the world has had a flow on effect on the capacity to buy a vehicle and have it delivered quickly. Many people are choosing to avoid the wait and make use of the immediate convenience a subscription service can provide.
• ‍Inflation and interest rate rises. As we all wait to see what the Reserve Bank’s monthly decision will be, and as housing affordability and cost of living pressures increase, consumers are tightening their belt buckles.Motor subscription offers a more cost-effective alternative to traditional car ownership and allows customers to avoid the long-term commitment and upfront costs associated with buying or leasing a vehicle.

The impact of COVID-19 on motor subscriptions

The motor vehicle subscription business/service is one of the few motor vehicle offerings in Australia that has benefited from the COVID-19 pandemic. The pandemic has caused a shift in consumer and business preferences, making the short-term nature of motor vehicle subscription an attractive alternative to ownership.

Consumer preferences

As many people continue to experience financial uncertainty and job loss, they’re looking for more affordable and flexible ways to access vehicles. Consequently, demand for alternatives to buying and traditional leasing has grown.

The shift in the way people work and travel, with more people working remotely – or simply not wanting to share confined spaces with others – public transport has become less appealing. Whilst this has increased the desire for personal transportation,  the previously mentioned factors have still dulled the desire or ability to purchase vehicles.  Thus, motor vehicle subscription has become a more convenient and cost-effective option.

Business preferences

Many companies are looking for ways to reduce their fixed costs and increase their flexibility in the post-COVID world. Motor subscription can be an attractive option for businesses as it allows them to access a fleet of vehicles without the long-term commitment and upfront costs associated with buying or leasing them.

What are the challenges with motor vehicle subscriptions?

Despite the growing popularity of motor subscription, there are still some challenges that need to be overcome.

Lack of market standards and regulations

One of the main challenges is the lack of standardisation in the market, with different providers offering different terms and conditions. This can make it difficult for customers to compare options and make an informed decision.

Clarity around insurance

When it comes to insurance in the subscription model, the asset owner of the vehicle (most likely the company or dealership offering the subscription service), is responsible for maintaining the insurance on the vehicle. The subscriber is typically not required to have their own insurance, but they are bound by a subscription contract that outlines the terms and conditions of the service, including the responsibilities of both parties with regards to insurance.

Exclusions and limitations of insurance coverage

Whilst the subscriber is generally covered by the subscription contract, they should be aware of any exclusions or limitations in the insurance coverage provided by the asset owner. For example, the insurance policy may not cover damages caused by reckless or negligent driving or may exclude certain types of accidents or losses. Additionally, in some cases, the subscriber may be required to pay a deductible or co-pay for any damages.

Accident cover

Subscribers need to understand their own liability - and the insurance coverage provided by the asset owner - in case of an accident. In the event of an accident, the subscriber may be held liable for any damages caused to other parties, even if the accident was not their fault.

No customised coverage

Another important consideration is the fact that the subscriber may not be able to customise the coverage according to their needs as they would in traditional car insurance as the coverage is determined by the asset owner.

Subscriber beware

Motor vehicle subscription is a convenient and cost-effective way of accessing and owning a car, but subscribers to understand the terms and conditions of the subscription contract, particularly regarding insurance.  It is essential for the subscriber to read the contract carefully and to make sure they understand their rights and responsibilities, as well as the limitations and exclusions of the insurance coverage. In case of any doubt, consulting with an insurance expert could be helpful.

The end of a business means the immediate end of a subscription contract

If an asset owner goes out of business or stop offering the subscription service, during the subscription term, the subscriber would need to return the vehicle immediately. In which case, they’d find themselves unexpectedly looking for a new motor subscription provider and vehicle, which could be costly and time-consuming.

In conclusion, the development of motor subscription in Australia is a promising new trend that offers customers a more flexible and convenient way of accessing and owning a car. With more and more providers entering the market, and digital platforms making it easier for customers to find and subscribe to car services, the future looks bright for motor subscription in Australia. There are many drivers that are changing the way we think about motor vehicle ownership and are leading away from the concept of traditional motor vehicle ownership. It important for consumers and businesses to understand the contractual differences between traditional ownership and a subscription agreement.

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