It’s an unusual comparison, though when you only want something short term or casual, traditional leasing may not be the best option for your employees or your business.
Fleet Auto News spoke to Chris Noone, CEO at Carly, to understand how car subscription works, and why Carly has continued to grow during the COVID pandemic despite vehicle supply shortages and snap lockdowns reducing the number of kilometres being travelled by fleets and novated drivers.
Noone believes car subscription services have a place in the market for consumers and businesses that can’t predict what will happen four years ahead.
“Traditional car finance and ownership locks you in for a fixed period and it can become expensive if your situation changes and you need a different type of car,” says Noone. “And most people don’t understand the true cost of car ownership which is what we are trying to educate the market on.”
Continuous lockdowns have created uncertainty for business and employees that need a car for work may be anxious about committing to a long term finance arrangement. This is the sweet spot for Carly because car subscription plans can be cancelled with 30 days notice.
Short term rental options
Mini-lease is the term used by Fleet Management Organisations to describe a product that is shorter than three years. It’s not their main product and creates a number of internal challenges when clients need a vehicle for a short term project, or immediately for a new starter.
Rental car companies face similar challenges when a customer needs a car for more than 30 days. They are priced for short term rentals which becomes expensive for businesses compared to a three year lease.
The average subscription period for Carly is currently 5.7 months and has been increasing steadily over the last 18 months.
SG Fleet, a specialist fleet management and novated leasing provider, saw an opportunity in 2019 to fill the gap by making a strategic investment in Carly as well as supplying vehicles to be used for subscription customers. In their FY2021 annual report, SG Fleet commented that there is growing interest from customers in the flexibility of subscription services.
Flexibility comes from the subscription period, the range of vehicles, and the ability to swap from one to another; plus the pricing transparency. The monthly cost of a car subscription covers depreciation, insurance, registration, maintenance and roadside assistance. You only pay for petrol.
Perfect for fleets
It doesn’t take long to make a list of reasons why car subscription should be in a Fleet Manager’s toolkit. Every business will have a need for a long term rental (30 days to 12 months) at some point.
Noone says car subscription is best suited to help businesses solve mobility problems that traditional leasing and car rental can’t. He provided FAN with examples of new employee onboarding, seasonal industries, project work and budget constraints where customers had used Carly to mobilise staff and generate revenue without committing to a long term expense.
“We have customers that use our services for a number of reasons. Once they realise how car subscription fills a gap within their existing fleet operations, they become enthusiastic adopters of the model,” says Noone.
Subscription for electric vehicles
There’s an opportunity for vehicle manufacturers to introduce zero emission vehicles to consumers and businesses through car subscription. Carly has already worked with Subaru, Peugeot and Hyundai to ‘get bums on seats’ for potential owners to try before they buy.
The two main barriers to EV adoption (range and charging infrastructure) disappear once people get a chance to experience electric vehicles for a week or more. Car subscription can provide the opportunity for short ownership periods without the financial commitment. Manufacturers can also test the number one barrier (price) by varying the subscription rates to understand how much extra fleets are willing to pay to be emissions free.
Where do the cars come from?
Market dynamics determine the availability of cars for Carly to offer customers. The recent disruptions to new car supply and surging used car prices have challenged the team in 2021 which is forcing them to consider asset ownership as part of the mix.
Vehicles traditionally come from FMOs (SG Fleet, ORIX, Custom Fleet, Interleasing), car manufacturers (Hyundai, Genesis, Subaru, LDV, Peugeot) and car dealers (Alto Group, Suttons).
The model depends on the used/new car supply cycle. Three years ago there was a surplus of new cars and falling used car prices. Dealers and fleet management companies were looking for different ways to improve the returns on used assets, and car manufacturers needed an alternative to car rental which demanded big discounts. Car subscription provided the answer.
Noone is counting on the new car cycle returning to oversupply again in 2022/23 as production levels normalise to pre-COVID levels. This will mean more cars for subscription customers and more time for Carly to convince Fleet Managers to include car subscription in their tool kit.