GM, of all companies, announced an innovative car subscription service for its Cadillac brand this week. For $1,500 a month, you can get any car in the lineup delivered to you, and you can switch cars up to 18 times a year. Insurance, registration, and maintenance are all included, and there is no long-term commitment.
Fancy a drive in a CTS-V, but also need an Escalade to haul the kids around? If you live in the NYC metropolitan area, you’ll be able to take advantage of BOOK soon.
Gizmodo quickly criticized the offering as a toy for the rich, but hang on a second. There are a number of situations where such a service could make sense. Let’s ignore the cost for now, but we’ll get back into that.
Car subscriptions could fill an important niche for city dwellers
In the U.S. as of 2012, 92% of households own a car. But the dynamic is different in cities. Take the borough of Manhattan: only 23% of residents own a car [1]. That’s an extreme example, but in New York City overall, 54% of households do not own a car [2]. Other cities aren’t too far off from that.
There are a number of reasons for this. Many city residents commute by walking, biking, taxi/Uber, or public transportation. Parking can be difficult and expensive. Driving in the city sucks. Insurance rates are higher. Owning a car could be an unnecessary expense if not used regularly.
A lot of people want to be able to take a road trip to the beach, the mountain, or wherever else. Maybe they need a car for an occasional business meeting outside the city. Perhaps they visit their parents in the suburbs every so often. I’m willing to bet a significant portion of city residents hold on to a car just for these purposes, despite the disadvantages, because of the kind of access car ownership enables.
The thing about owning a car is you’re stuck with what you’ve got. Which is more fun to drive: a giant SUV or a sports car? Which one is easier to park? Which one hauls more stuff or passengers? Which one is better in inclement weather? The type of car you choose to own defines the type of use and enjoyment you can get out of it.
And what if you’re not going to use the car for a while? You still have to pay for insurance and parking. If you’re on a lease or financing the car, you’re married to it. There’s no cheap or easy way out.
For the somewhat-frequent business traveler, renting a car can add up, especially if the car is needed for a number of days. A BOOK subscriber could land in a new city, have the car delivered, and drive as much as needed without worrying about mileage limitations.
I’m not saying BOOK solves every problem for every person. It doesn’t. You still have to pay for parking while you have the car. But when you know you don’t need the car, there’s a savings. Owning or leasing might be cheaper in the long run, but BOOK gives you the freedom to not even pay in the months you don’t need the car. It’s probably cheaper to rent a car if you only need it sparingly, but some people would need to rent often, which is currently a pain.
The service is for a specific audience, but that niche is probably bigger than you think.
Yeah but fifteen-hundred dollars!
BOOK in this iteration is clearly geared toward wealthy city residents. But it’s highly likely GM is using Lean Startup techniques in validating a larger concept. A small market limits the number of cars Cadillac has to supply to the experiment. Wealth is correlated with education. Both of those attributes are correlated with a lot fewer problems, like accidents, failure to pay, and abuse of the vehicles [3]. With those risks out of the way, GM can study use patterns and demand before scaling up.
Think about Tesla, which started out selling a Ferrari-competitive sports car, then made a cheaper-but-still-expensive luxury car, and is now about to come out with a commodity-priced car. If GM can prove demand and work out the kinks with BOOK, you might see a similar Chevy On Demand offering in the future at a lower price. And surely, countless entrepreneurs are watching BOOK to see what happens.
Let’s not stop there though.
Car subscriptions in the autonomous age
It’s inevitable: cars are going to drive themselves completely in a matter of years. We can argue about the pros (safety, convenience, freed-up time, speed) and cons (short-term job loss, driving can be fun), but the long-term effect is a net positive for society. The transition has already begun with partial autonomy.
There are a few different scenarios for car usage in the future:
In the first scenario, a self-driving version of Uber will be the best option for intra-city trips. UberPOOL, the service that lets riders pay for a single seat in a shared Uber trip, will probably continue to be the lowest-priced option. Those in need of a quicker ride, or those desiring something bigger or more luxurious, will pay more for the various options. In this scenario, the user is paying for the time occupied between points A and B.
A second scenario: longer-distance Uber-style trips are likely to become more common. The rider pays for a seat, or perhaps a whole vehicle, to travel between two cities. He pays for the time in the car. When he gets out, the car disappears to pick up someone else. Or if the user travels to a remote destination, where it is unlikely someone else will request a ride before the return trip, she pays extra.
These first two pay-as-you-go scenarios address multiple inefficiencies, but there are two I want to highlight: the vehicle has a much higher rate of use, and parking is not a concern for the rider. Because of these, savings can be passed on to the end user, and it only makes sense that car ownership will be disincentivized for those who only take short trips and the occasional longer trip.
But what about those who need a car every day to travel long distances, like commuting from the suburbs? No doubt, they are going to be the last group to own cars en masse. But car ownership will be disincentivized for these people too. Constant upgrades that are required by law to enhance overall safety will be coupled with diminished demand for out-of-date used cars. Cars of the future are transportation appliances.
The frequent car user who takes longer trips is ripe for an autonomous car subscription service. This will be a lot like leasing a private car today, albeit with more control by the fleet owner than the lessee. Whenever an upgrade or maintenance is required, the subscriber just gets a new car. And the user will be able to change the vehicle type at will.
The target market for BOOK by Cadillac today (wealthy city dwellers) is not the same as a future subscription market (people needing consistent long-distance car service). But it is GM’s chance to get its foot in the door in a world in transition from products to services. This move only helps prove that GM is committed to staying relevant in the long term.
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