Cars are not what they used to be. By that I mean, yes, they pretty much all have four wheels and fulfil the required function of getting from A to B, but, they're (increasingly) no longer an asset; a gleaming artefact proudly ensconced on the drive reflecting the love (and wages) you've put into it.
We insure cars, and the insurance differs depending on how the car it bought. Cash or on credit? Or a financiers dreamt up combination of hire and purchase? It's pretty much the first question we ask if you phone us. So we get to understand how people are buying cars. And the answers are increasingly shifting from handing over suitcases of cash to clever credit arrangements where the car never leaves the financiers asset register. The story is more hire and very much less purchase.
The trend is put down a deposit, pay a monthly fee and give the item back after a specified period - usually three years. It's not just businesses that are doing this. It's private individuals and probably a third of our individual customers are acquiring a vehicle this way. A couple of years ago this was virtually zero.
Car ownership is becoming temporary. A transient attachment which is doomed at the outset. A pay-monthly privilege rather than a lifetime commitment.
What's happening? It's a trend in society where car ownership has fallen down the list of aspirations for the young. They're buying into an app-based world where you summon your travel mode via your smart phone. Travel planning apps will tell you the best combination of public transport, the nearest, quickest and cheapest taxi, potential lifts you could share or car club vehicles you could hire by the minute or just to walk. Why sink your savings into a car when you don't need to? You can ride the web of opportunities far more cheaply and without tying yourself into the responsibilities of insurance, upkeep and storage.
Move on a few years and maybe there's a baby or a job that needs a car. Already in the mentality of use over ownership, contract hire seems like the way to go. Hiring a car for a few years rather than a few hours. There are a few more responsibilities but it's still a step or two away from owning a car. You get to use it for a while. Then give it back and get another.
It's not just the young though, it's older people seeking predictable outgoings - against unpredictable depreciation. Not wanting to tie up capital in a vehicle when large sums of money can be useful elsewhere.
Contract hire is convenient and predictable. As an insurer it's expensive though - if a car is written off, the usual requirements are settlement of all outstanding payments and the future value of the vehicle. We don't want to sound like we're over selling it, but GAP insurance is essential if you contract hire a car. Predictable outgoings become an unpredictably large bill if the worst happens.
So, will this be a trend that continues? We think there is definitely a move away from ownership towards technology and pay-per-use travel. The options are diverse and car manufacturers are taking the shifts in our aspirations seriously. Whether through their finance operations and contract hire deals or through creating fleets of hire by the minute cars like BMW's Drive Now car hire in London, Daimler's Car2Go and Ford's City Driving on Demand, manufacturers are looking at our relationship with the car and experimenting with different models.
As Alicia Agius, new product designer at Ford, put it: 'Owning a car in a big city can be difficult and expensive. Testing higher quality and more flexible car sharing schemes is an important part of our experimentation process - to lead to an all-new model of transportation and mobility within the next 10 years and beyond."
Change is afoot. There will be lots of ways of using a car in future. We can't say whether contract hire will be the most popular, or whether there'll be shared cars on every block. The one thing we can say is that fewer people will own the vehicle they drive.
by Beate Kubitz at 7 Mar 2015, 00:00 AM