Auto loans need an overhaul
If you’re a regular reader of mine, you know I love subscription business models. I have a meal box subscription, a clothing subscription, a cosmetic sample subscription, two self-improvement program memberships, a daily guided meditation subscription and a yoga studio monthly membership. I get my tunes from an Apple Music subscription and watch TV with my Sling subscription. Anything else I need to buy is probably delivered free thanks to my Amazon Prime membership.
It’s no surprise that when I recently saw a commercial for Canvas, a car subscription, it caught my attention.
At the risk of never being allowed inside a credit union event ever again, I must say car subscriptions are intriguing. Lease deals aren’t as good as they used to be, and as interest rates rise, financing a purchase is increasingly unattractive. I have a couple of years left on my current auto loan, and according to Kelly Blue Book, my vehicle has some decent equity. Still, it’s a depreciating asset. Eventually I won’t have a car payment, which will be nice for my budget, but it won’t be long before it’s worthless and unreliable.
Canvas is financed through Ford credit and offers Ford and Lincoln vehicles. Most other manufacturers have similar subscription models, even Porsche. (Midlife crisis, anyone?) The obvious benefit is the ability to swap out a different car whenever you’d like. At this point, I’d be satisfied with a new car every 36 months, which a lease provides, but we all know consumer tastes change without realizing it. I used to be perfectly happy with a modest CD collection. Now I can’t imagine not having access to the entire iTunes library whenever I want it. It probably wouldn’t take long for me to accept swapping out a new car every few months as the new norm.
A benefit I didn’t expect, but find extremely attractive, is the bundling of insurance, maintenance and roadside assistance into the monthly fee. Like my mortgage lender, which won my business primarily because it packaged my mortgage payment, insurance and all taxes into my monthly payment, a personal transportation bundle sounds awesome. Simplify is the name of my financial management game, even if I have to pay a little extra to get it.
However, at this point, the subscription rate is too high. The monthly subscription I’d be willing to pay from Canvas only offers returned lease vehicles from 2015. Heck, that’s only slightly newer than my current vehicle. Subscriptions are supposed to be fun. New is fun. Somebody’s leftover lease is lame.
Car subscriptions are currently priced for early adopters. Eventually, the price will drop to the point where it will be a better deal than financing a purchase. When it does, my auto lending days may be over.
That sounds scary enough for credit unions, but here’s something that’s terrifying: I’m old. I may seem young to retiring baby boomers, but at 48, I’m mathematically over the hill. If an aging GenXer is eyeing auto subscriptions, what chance does a credit union have trying to convince an immediate gratification seeking millennial or member of Gen Z to sign on the auto loan dotted line?
All is not lost. These subscriptions are financed by manufacturers, and we know their history. They love to finance vehicles … until they don’t. Credit unions found creative solutions that solved the need for dealer financing in the 1990s with CU Direct’s CUDL and other indirect lending platforms. If credit unions harness that same innovative spirit, I’m confident we can find a way to transition into the subscription economy.
