Dear LH community,
I am new here and got to know LH while researching for a new car buying concept. I wanted to really understand the difference between the new car subscription concept popping up and the usual lease.
I have learned a lot here and still have a lot to go. Thank you for the amazing community you have.
The concept I am thinking of is close to what fair.com had. I read a lot about fair.com’s demise online but on this forum I read about the real issues many people experienced using fair.com
I am thinking of a concept like fair.com but that avoiding the problems they had.
So my questions to the community are
do you think there is value in offering a flexible lease on used cars (let’s say minimum 1 year commitment)?
what is your biggest concern if you were to use that service?
Under which conditions would you buy/lease a used car vs buying/leasing a new one?
any other advice/recommendations are highly appreciated
Thanks and looking forward to reading your replies.
Used car leasing sounds good in theory but there are practical challenges. You are competing with both leasing arms of manufacturers and traditional rental companies which have the scale, funds therefore cost advantage to start with . Residual value forecast errors which will have to be done separately for every car you own will quickly throw you to red. The other large cost would be the warranty costs . Add overhead , taxes , financing costs etc . In short, it may be doable for 5 cars but just like most business , the real challenge is to be able to scale up - profitably -.
I think at this stage its more important for me to find a model that works vs worrying about the billions. I think investors are willing to fund a working business model. That doesn’t mean that I am the one who will be able to get the billions needed.
I highly appreciate if you would share your thoughts about the concept, what do you think would work, what to avoid, would this concept appeal to you etc…
Thanks.
Good for you for thinking about a start-up, you don’t need all the money in the world but be ready to grind for 5 years and be left with nothing in most cases. If you’re OK with that possibility grind away and if you do succeed you will love yourself for it. As for the questions, I will think on it.
If it’s a lease, I’m hoping I don’t have any concerns aside from cost. My concern, as with any other lease, is how can I get screwed by said company? (Can I get out? Can I buyout? etc)
I think generally this is subjective (I know people who don’t like “used”, or only want the shiny stuff, for instance). Personally, see point 1, if it’s significantly better than leasing new, a year or 2 older for my target vehicle is great by me.
I see Mike’s point being the biggest problem here, the second being the crux of your second and third questions, what audience could you capture.
I’m a small child with no experience as a CEO/founder or proper lease hackr. In fact, my negotiations and math skills are so poor I may just steal a bicycle and be done with this.
The biggest hurdles i think youre going to run into here is around managing residual values. Youre talking about out of warranty vehicles with residual values that are going to be harder to predict, no manufacturer incentives, and no manufacturer support for buying down interest rates, etc.
That translates into high amounts of depreciation and high rent charges and you can pretty quickly see why used leases end up costing a lot more than just getting a new vehicle.
I would think the only way youre going to stand a chance of doing a competitive business would be to focus on niche vehicles.
I had a great exp with Fair as I was a early adopter when they launched.
GM denied my 1st ever lease application(it was a new Encore) when I was still a student intern at that time
but I was able to find a like new Nissan Rouge Sport just under 3k miles through Fair and the application went through smoothly right on my phone, comparing to at least 3 hours dealing with salespeople at a GMC dealership…
things I considered at that time:
total costs. Fair offered car+insurance, much cheaper combined than other options I could find at that time, especially the insurance costs since I was a new driver at that time.
maintenance included. I didn’t need to pay anything, just brought the car to the servise provider
customer service was also great!
One of the biggest advantages to leasing a new vehicle is being able to figure out a mostly fixed expense plan for X number of months.
Payment
Insurance
Maintenance (if not included)
Personally I would never lease a used car because I don’t like the idea of making payments on something out of warranty (that’s a me problem). If the used cars you’re referencing all had a specialized warranty for the life of the term and prior to being leased had a fresh set of tires and brakes, it would be more interesting. Without those things, it wouldn’t be a good option for a standard 3 year lease.
Some questions worth asking yourself is-
What problem are you trying to solve?
What’s the value this service would bring compared to a traditional lease model or a subscription based model?
If you can’t clearly articulate the problem you’re trying to solve or a value add, it’s a tough sell. Hopefully these questions become easy for you to answer over time.
What is involved in setting up used leases?
Would they be self funded?
Are there any banks doing this already?
Short term would make the most sense in my opinion while the vehicle is still under warranty…
Does insurance go under your umbrella like Finn?
And some questions @houssameddin could answer, to get better feedback:
aside from the Fair comparison, I’m hearing “shorter than a lease but longer than a rental” - I assume you have a clearer vision for what the service is?
who is it for? What is TAM (without cannibalizing the edges of the existing markets)?
what competitive analysis have you done? Have you read all the case studies on auto manufacturers who tried to convert off-lease to short term rentals? And on rental car companies doing long term leases?
have you done the analysis on OEM subscriptions for new cars, and state regulations/restrictions to see where you might have barriers to entry?
peer to peer rentals? What’s the upside of launch a company to do this when you could test-and-learn with a very small fleet under an existing brand?
My guess, if you do more research, is that your target market for 1+ year rentals of used, under warranty (OEM, extended, 3rd party, who cares) cars not the typical Lease Hackr who is signing deals, especially as shortages come to an end. Grad students, travel nurses, scratch-and-dent credit, who want something reliable they don’t have to worry about.
The best source of those vehicles may or may not be off lease, but more likely scratch-and-dent car faxes: bumper replacement, fender bender, looks good until you hit it with a paint meter. At scale, maintaining that fleet with your own people is probably most economical, but where and when can you hit that tipping point?
A lot of companies have already vaporized tens of millions+ in trial and error, and only have the data to show for it. Learn from their mistakes and refine your pitch.
Did fair offer warranty during the whole subscription duration? I read elsewhere that customer was responsible of maintenance and people didn’t like being responsible for a car they didn’t inspect.
Your 3 values are nice, but #2 and #3 come with a price tag and therefore compromise #1.
Car rental companies make money by buying cars dirt cheap from desperate manufacturers. The real dough comes from selling these cars 20k miles later. How can you do that with used cars?
Why would any one lease a car that’s not under warranty? That’s the beauty of a lease. In most cases, it’s not my car and it’s not my problem if a part fails.
What kind of experience do you have in this area? I would think investors are going to want to see a viable business plan and someone with background that indicates that you would be able to keep the business afloat and eventually churn a profit.
Also, what would the math look like on ten, hundred of your target vehicles? We don’t mean to discourage you, just want to make sure you thought through this before you invest your time and money.
If, and only if, a lightly used vehicle would have an overall cost that was less than a comparable new vehicle. The questions that I have immediately though related to my cost/risk are similar to what others have said…
What happens if I have an out-of-warranty event? Is that covered, and if so, is that warranty coverage baked into the price of the car already, or is it a separate charge, thus adding additional overall cost to me?
Some manufacturers cover (either at a cost to me, or no cost), maintenance items, such as oil changes, brakes, wipers, etc for a certain mileage/time threshold, or for X number of visits after signing the lease. Would these be included in your scenario, and if so, what does coverage look like? On a new lease, outside of oil changes, wipers, or perhaps tires, and for fewer yet, brakes, many don’t have to worry about maintenance. On a used vehicle, unless those items are brand new upon assuming the lease, those costs would become more of an issue to the lessee, thus potentially raising the cost to them, unless some sort of coverage was included.
In a new car lease, theoretically, I am locked in for the duration of the contract, however, there are ways I can get out of it if need be (sell car and either pay underwater money/roll it in to new lease, or possibly sell and net some money should value be greater than retail payoff. Or, I simply turn the car over at the end, and let the bank worry about the underwater amount, should that be the case. How does this work in your scenario?
GAP coverage is included with all leases (except Toyota). Who is responsible for this in your scenario, or would GAP be on me?
Biggest concern would be overall cost/risk to me on leasing used vs new.
If the overall cost was significantly less than purchase or a new lease, and the risk to me was at minimum equal to or preferably less than leasing new
These are just 4 I thought of right off the top of my head without too much thought. While the monthly payment you offer may be cheaper, if I have these additional charges above that will add to my overall cost, and it’s not much cheaper than just obtaining a new lease, I’d just assume getting a new lease and not worry about the other things. It would have to be a substantial savings overall, or be generally more lucrative than simply leasing a new vehicle over used. To this date, I have yet to see that pan out in reality, and the value proposition just isn’t there. I’m not sure how you would accomplish this as a startup vs captive banks with deep pockets or other similar services who have tried and failed at this approach already.
They did offer warranty and covered maintenance as well
my car was like a new car, so it was still under Nissan’s warranty too, no need to worry at all
