19 Jun 2023

Subscription, leasing or owning – which is right for you?

When it comes time to buy a new vehicle – whether for your own personal use or for your business – most Australians automatically assume they’ll be buying outright with cash or with a car loan. But in today’s financing world, you have more options. In fact, car ownership trends are changing worldwide, including here in Australia. And younger generations and businesses in particular are looking for different ways to get behind the wheel of a new car. Two of these solutions – subscription services and leasing – are proving to be great alternatives to car ownership. And they may even work better for your specific needs.

Car ownership trends are changing

Car ownership trends are changing. Australia is seeing a revolution in autonomous vehicles, car sharing, electric vehicles, ride sharing and vehicle technology. All of which is radically changing the way we get from A to B. Along with this, the way we finance our vehicles is on the move as well. In particular subscription services and leasing are becoming increasingly popular for many Australians. And they’ll likely become more popular as they are better known. So what are your options for getting a new vehicle (or even a number of vehicles)? What are the pros and cons of each? And why are people moving away from traditional car ownership in favour of leasing and other solutions?

Traditional car ownership – outright buy or auto loan

Traditional car ownership is just that – buying a vehicle with the goal of outright ownership. And this is the way we have traditionally bought vehicles. Of course, most businesses cannot afford to buy a vehicle outright every time, it’s a significant cash outlay. This is especially true if you need to buy a number of vehicles. So most people would seek out a car loan in order to buy. Cash flow and available credit can quickly become a barrier to financing a number of brand new vehicles.

Pros and cons of traditional car ownership

Of course there are some benefits to traditional car ownership. One, you’ll own the car outright eventually and for some business owners, this matters a lot to them. Others find that because the vehicle is used for business purposes, there is less of an emotional driver to ‘call it your own’. On the other hand, vehicles bought outright or through finance, tend to be kept a lot longer. It’s often a hassle to sell or dispose of a vehicle and the capital outlay to purchase a new one can prolong an upgrade. And it goes without saying, the longer you hang onto a vehicle, the more it depreciates and the higher general maintenance and running costs become.

Subscription services

If traditional car ownership is sounding less than ideal, there is a new approach to car ownership – subscription services. While this type of car ownership is still in its infancy here in Australia, some car manufacturers are offering this service for their particular vehicle brand. And there are other generalist companies on the market as well.

The subscription model – and leasing options which will talk about next – are putting the traditional model of car ownership under pressure. In the case of a subscription model, it’s not unlike Spotify or Netflix.

People take out monthly subscriptions which then give them access to a specific car for that time period. The car remains on the owner’s books, who maintains it, services it and covers all the general operating expenses. You, as the subscriber, don’t need to worry about any of that. And at the end of the period, you either return the car or renew the subscription.

Pros and cons of subscription services

The benefits of this are, of course, a lower initial outlay and less hassle, making it extremely budget and lifestyle friendly. As the subscriber you won’t have to worry about servicing or maintenance. And you’re no longer tied to just one car for many years. In fact, you can change it at the end of every subscription period. Although it’s worth mentioning that subscription services tend to attract a higher monthly cost due to the shorter leasing terms. One thing to consider is you are limited to what kind of car you can lease here in Australia. And if you need a number of vehicles to keep your business running smoothly – or specific vehicle fitouts and company branding – it can be difficult to find something that fits your day to day operations perfectly.

Leasing – the perfect middle ground

A bundled lease, often referred to as a fully maintained operating lease (or complete lease) is the perfect middle ground between the limits of traditional car ownership and the short term flexibility of subscription services. A bundled lease is similar to a rental agreement. You only pay for the use of the vehicle, but the Leasing Company bares the risk of the future resale of the vehicle, as well as all the maintenance, servicing & tyre costs. You get full use of the vehicle during the life of the lease, and you simply return the vehicle at the end of the lease. All vehicle costs and benefits, like a fuel card and roadside assistance, are bundled into a simple monthly invoice – similar to the subscription offering. The monthly rental, however, is flexible and calculated based on your planned kilometer use and lease term.

Pros and cons of a fully maintained operating lease

There are plenty of benefits to using a fully maintained operating lease to get one vehicle or many, for your business.

  • Vehicle customisation and fitouts can be accommodated in leased vehicles
  • Less risk when it comes to buying and reselling
  • Frees up business capital that would otherwise be tied up with asset ownership
  • May provide tax benefits (if the vehicle is used to generate taxable income)
  • Gives you flexibility to keep your vehicles up to date, particularly important where you have a number of vehicles
  • Saves you time that you would otherwise spend on managing your vehicles
  • Keeps you in new cars without having to invest resources into upgrading
  • Simplifies your budgeting and cash flow each month because the cost of the car (including running costs) is bundled into a single, fixed monthly payment

In general, the main disadvantage of leasing a car, or a fleet of cars, is you won’t own the asset outright. However, given a vehicle is a depreciating asset, many business owners aren’t phased by their fleet remaining owned by the lessor. Unlike with your personal vehicle, it’s often important to keep your business car, or fleet of cars, up to date. This is because it represents your business – you want to show it in the best light. Plus, an up-to-date and well maintained fleet helps to keep your employees safe.

Why more Australians aren’t using fully maintained leases

Generally, Australian Businesses aren’t using fully maintained leases more often because they simply aren’t aware that they are an option. But in today’s modern world, a fully maintained lease is a fantastic option when it comes to keeping your business on the road. At FleetPartners, we’re experts at operating leases for your car or cars. We can help you manage the entire process and ensure that you’re getting all the benefits you need from your vehicles.