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Car Subscription Services Hit the U.S. Market by Storm

2018-12-06 11:27 Thursday

Automakers, dealers and start-ups are now offering car subscriptions as an alternative to traditional financing models. They work like any other subscription: sign up for what you want, cancel it when you're done.

Car Subscription Services

Flexdrive, based in Atlanta, has more than 9,000 users, and is adding 600- 800 new subscribers every month. Its vehicles are now available in 17 U.S. cities, and the company plans to go national next year. Flexdrive doesn't purchase the cars, but rather partners with dealerships and pays them for use of the vehicles each month.

The company allows you to order a car on its app within minutes without any contract or credit check. Subscribers need a clean driving record, three years of experience on the road and a credit or debit card in their name. Subscribers receive an alert when their vehicle is due for maintenance, which is conducted by a nearby service shop that partners with Flexdrive.

The average monthly Flexdrive subscription costs around $800, but prices range, from Toyota Yaris for about $400, to a Porsche Cayenne for more than $1,500. In most cases, subscribers have to pay a refundable deposit on the car. The monthly fee includes a warranty, standard roadside assistance, maintenance and insurance. If a subscriber is involved an accident that's deemed their fault, however, they typically have a $1,000 deductible. Drivers are also responsible for paying for gas.

Fair, another car subscription service headquartered in Santa Monica, California, has some 20,000 subscribers and is adding an additional 500 each week, according to the company.

"We want to eradicate auto debt," said Edward Brojerdi, Chief Consumer Officer at Fair. "We don't think you should take out a loan for a depreciating asset. The millennial generation grew up in a world of subscriptions, and they don't feel it's odd at all to consume an automobile in the same fashion."

After the subscriber scans their driver's license on the Fair app, an algorithm factors in credit, income and other variables to generate a list of vehicles available to them. After selecting a car, Fair purchases it on the subscriber's behalf, and arranges for it to be picked up at a nearby dealership or  delivered. When a car is returned, the company gives dealerships the option to buy the car back or otherwise puts the vehicle up to auction (all of the cars in the system are under 6 years old).

The average Fair subscriber pays around $350 a month. A Hyundai Accent GS is just $150 a month, and the priciest option is a McLaren 650S at $4,095 a month. That fee covers a limited warranty, routine maintenance and roadside assistance.

Compared with Flexdrive and Fair, the average monthly car loan payment is $533 for new cars and $397 for used vehicles, according to the latest market research. The typical driver takes nearly six years to pay off their car loan — and nearly a third of them trade in their vehicle before they've paid it off, and pick up another loan instead.

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