Book by Cadillac is somewhat of a pioneer. General Motors’ luxury brand was the first to launch a mainstream car-subscription service with a pilot in New York City. Now, the brand has taken it to Munich, Germany, and it will head to Dallas and Los Angeles.
The Financial Times reported on Thursday that this ownership model will continue to grow, and grow significantly, through 2020. While it opens up a jar of fresh opportunities for consumers who want to purchase mobility, but not a car, it brings new challenges with it, too.
The biggest issue will be depreciation. Since automakers are basically selling the car to themselves, it will become a very capital-intensive service. It’s part of the reason luxury brands work best for the model. The premium prices can offset things like insurance, maintenance and some depreciation.
Philippe Houchois, an analyst at Jefferies, said, “The risk is we underestimated how much the carmakers know about the fundamental values of their vehicles.”
Another factor will be vehicle availability. If the services grow at the forecasted rates—over 40 percent of cars on the road subscribed to, rather than bought or leased—automakers will need to store plenty of cars if on-demand swapping is part of the platform. Cadillac and rival Porsche will offer white-glove, on-demand delivery. Subscribers can take an Escalade for the week and be in a CTS-V for the weekend with the $1,800 per month rate.
“You have to build in a fairly low utilisation rate, otherwise you’re going to have unhappy customers because they can never get the car they want,” Houchois added.