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Car subscriptions – a flexible alternative to leasing

Car subscriptions offer a flexible alternative to traditional financing methods such as PCP or leasing

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Car subscriptions offer an alternative to financing methods such as PCP or leasing, but as a representative from a subscription service would tell you, subscriptions offer the flexibility that a leasing or PCP contract is not designed to provide.

As the names suggest, a leasing contract (PCH) or contract purchase (PCP) is a legally binding contract that provides you with a particular car for a particular length of time, where you agree not to exceed a particular mileage each year.

You may or may not choose to include maintenance in the contract. In exchange you agree to pay the monthly rental and other costs associated with the contract, each month.

If you decide you don’t like the colour, or that a different model would be better for you several months into the contract and choose to end it, you could face some significant penalty charges for breaking the contract.

A more flexible option

If you choose a subscription instead, it’s likely to offer considerably more flexibility than a traditional lease or PCP. You might only need a car for a month or so, perhaps associated with a particular job or family circumstances. Or you might decide that you’d like a convertible for the summer months and a more practical car for the winter months. A subscription service would allow you to do that without leasing penalties.

So, what’s the catch? There’s really only the obvious one. Combine the words “flexibility” and “contract” in the same sentence and it usually means only one thing – a subscription is almost certainly going to cost you more each month than a PCP or lease contract.

“You’re not locked in for two, three or four years. There is an opportunity to get out,” explains Duncan Chumley, CEO of subscription provider Mycardirect, one of our commercial partners here at The Car Expert.

“It came from speaking to customers about the growth of contract hire. As people started to enter into personal contract hire, then more customers would come to us and say, ‘I want to change my car.’ Well unfortunately, you can’t, because you’ve taken a three- or four-year lease and you are committed to it for that period of time.

“If you want to upgrade or downgrade, then you have to exit your lease and in most cases it’s quite expensive to exit a personal lease, there’s no easy get-out clause. And of course, as you don’t own the car, you can’t just sell it.”

Chumley is the former chief commercial officer of Daimler Fleet Management and former managing director of Free2Move Lease, so knows the ins and outs of leasing and PCPs well.

“I thought that if I could create a product that allows people to upgrade, downgrade, move cars, swap cars, it would give them the opportunity to really change as they might require, or if anything went bad within their life, they could just hand the car back and they knew what everything was from day one.

“Everything is included in your monthly payment, so if you choose a Peugeot 3008 at £500 a month, all the maintenance is included, your tyres are included, your roadside assistance is included, VAT is as advertised, we don’t advertise excluding VAT – just talking about cars for the moment.

“There’s an initial refundable deposit that the customer pays, but if they return the car in line with the British Vehicle Rental and Leasing Association (BVRLA) return conditions, they get that money back. Then there’s just a little security deposit – no up-front payment.”

Perhaps not surprisingly, Mycardirect is seeing high demand for electric cars, running at approximately 20% of total subscriptions. It offers a way to sample one or more electric cars for a short period of time to see if they work well for the customer.

A range of choices to keep on changing

Customers can choose from a range of options from Mycardirect. If you really want to change your car every few weeks, a rolling month option allows you to change your car every month.

There are also subecription options for 6, 9, 12 or 24 months for the car that you choose. If you decide you want to change cars, you need only pay the difference – either the increase or reduction in subscription for the car you want – as long as you keep to the original subscription period.

On the other hand, if you choose to opt out during the subscription, it is possible to hand the car back, giving the agreed one month’s notice and all that the customer would be liable for is the difference between the 24-month subscription payment and the six-month subscription payment.

Let’s use the Peugeot 3008 as an example. Say that over 24 months, it would cost £500 per month, while for six months it would be £550 per month. The opt-out fee would just be the £50 per month difference that the customer would have to pay for each month of your subscription up until cancellation.

As Chumley explains, this is simply to stop customers signing up for 24 months to get the lower long-term rate and then only keeping the car for a month.

Ideal for van users as well

The system works in the same way for the company’s Myvandirect business. The target customer for the van business is small SME operators, as Chumley is not planning to take on the big leasing providers.

“Businesses that run maybe five to ten vans. For some of these businesses, contracts change, they upscale and downscale and of course some of the smaller businesses that might have a van then suddenly think they need a car.” It could be that the business is seasonal and the customer needs a van for part of the year and a car otherwise.

Fleet users and rental

Mycardirect also includes a car rental business, mainly to ensure as high a utilisation rate as possible for the vehicles on the fleet. “It just gives us the flexibility to maintain a big subscription fleet,” says Chumley.

A big fleet matters to Mycardirect because the subscription business is based around providing a car with specific trim and engine options. If those vehicles are not being used for the subscription business, they can then provide a second revenue stream through rentals.

*Mycardirect is a commercial partner of The Car Expert.

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John Kendall
John Kendall
Began working for a motor industry consultancy in 1988 before moving into automotive journalism in 1990. Freelance since 2001. Chairman of the UK-based Guild of Motoring Writers in 2006-7.