In a world of Uber and Lyft and the many other ridesharing and carpooling apps — here is a list of eleven, for gosh sake — it was inevitable that the big automotive companies would want to get in on the trend. The dam has burst at last, with four new services launching in the past nine months. And all four are subscription based.

Hyundai launched its Ioniq Unlimited program last November. An electric-car-only option, it is limited to California. The first out of the gate, this program is also the program most like a lease, with a single car available for a locked-in term of two or three years. Still, even a skeptic like Green Car Reports concedes, “Unlimited+ could be considered a ‘lease with benefits,’ but in fact the program really is a subscription.” The italics are in the original.

In January, GM launched a New York City-based luxury subscription service called Book by Cadillac, which is much more subscription like: It is a month-to-month program that allows the consumer to swap cars up to 18 times a year. Well-regarded industry pundit Jim Ziegler at Auto Dealer Monthly is skeptical:

• Here’s the problem. I have friends in New York. They take cabs, limos, subways and Uber. Most of them don’t even own a car and wouldn’t drive it in the city if they did. It’s not because they’ve been waiting for a $1,500 subscription service to come along. They just don’t have anywhere to park. You might as well double that price, because you’re going to have to rent a space to stash that Cadillac you don’t own. If I were in charge of this program, New York would be the last place I would launch it.

Well, as someone who has worked for many years in the city, I think maybe Jim is underestimating how much some rich New Yorkers want to drive, not to mention their ability to afford parking!

Cox Automotive and Holman Enterprises announced a partnership in May to launch Flexdrive. The subscription service offer users an app that allows them “to look up and book available vehicles from dealership inventories for weeks at a time with no down payment, mileage limit or long-term contract.” This one is intended for any interested dealer; it is not manufacturer-based.

Aiming at a less affluent market, Ford launched a service named Canvas just last month. It features a one month minimum, no maximum term, and prices that start around $425 per month, everything included. There are higher costs for more miles. The service is only available in the San Francisco region.

That’s four new services since November, and I would not be surprised to see more launch soon. But why are these programs launching now? And why are they using subscription models? The answers lie in some dismal data.

THE COMING CARPOCALYPSE

At the height of the housing boom a decade ago, lenders were eager to keep the bubble inflating. After they had basically sold houses to everyone who could afford them, they went looking to sell houses to people who could not. By making it easy for potential homeowners to buy a house, many people with poor credit or precarious means were pushed into subprime loans.

Well, everything old is new again. Once again, subprime loans are on the rise, but this time it is auto loans, not mortgages, that are the focus. Look at these Q4 data points from 2014, ’15, and ’16:

(Source: Experien, via Statista)

Deep subprime loans have advanced from 3.45% of all auto loans issued to 3.66% to 3.91%. Subprime loans have advanced from 15.58% to 15.77% to 15.96%.

It is not just subprime, though. Total auto loan volume is on the rise.

(Source: Federal Reserve/Equifax via Quartz)

According to Quartz’s Gwynn Guilford, “Mortgage regulations tightened after 2008 to prevent banks and other credit intermediaries from writing loans on the freewheeling terms that led to the subprime boom and bust. Auto lending attracts far less scrutiny – and therefore, offers more opportunity.”

The problem is that subprime loans are subprime for a reason. People default on them at higher rates than other loans. The bill is now coming due, and the volume of delinquent loans is rising:

(Source: Federal Reserve/Equifax via Quartz)

Matt Scully at Bloomberg makes a similar point:

• U.S. subprime auto lenders are losing money on car loans at the highest rate since the aftermath of the 2008 financial crisis as more borrowers fall behind on payments, according to S&P Global Ratings. Losses for the loans, annualized, were 9.1 percent in January from 8.5 percent in December and 7.9 percent in the first month of last year, S&P data released on Thursday show, based on car loans bundled into bonds. The rate is the worst since January 2010 and is largely driven by worsening recoveries after borrowers default, S&P said.

But an eagerness to make risky loans is only half of the coming carpocalypse. A big reason that auto dealers are pushing these kinds of loans is that they have too much inventory. Car makers were expecting ever-growing demand, but recently demand has actually gone down. The result is that there are too many vehicles on the market.

Patrick George at Jalopnik lays it out. “We got too many cars in America today! Particularly from the Big Three automakers, which, perhaps anticipating 2016’s sales to beat the record we saw last year, overproduced to the point of nearly-unhealthy excess inventory.”

Auto makers are beginning to realize that their hot streak in the United States is rapidly cooling, as demand last month turned surprisingly sluggish for the trucks and SUVs that have fueled record profits for domestic players. Here’s a look at the current overproduction:

(Source: FRED via Business Insider)

Here’s Jim Ziegler again, “The market is approaching total saturation. Customers are buried in cars they can no longer trade out of with terms that will keep them buried for years to come. And the manufacturers continue to flood the market with cars there are no buyers for.”

In May, Adrienne Roberts and Mike Colias at Fox Business reported that not only are sales down, but “It is taking dealers far longer to sell off inventory, resulting in a glut of unsold cars and trucks.”

Matt Scully describes that glut as a contributing factor in the loan issue, because repossessed cars are less valuable when the market is oversupplied. “Losses are rising in part because when lenders repossess cars from defaulted borrowers and sell them, they are getting back less money,” he writes. “A flood of used cars has hit the market after manufacturers offered generous lease terms. Recoveries on subprime loans fell to 34.8 percent in January, the worst since early 2010, S&P data show.”

Let me temper the “carpocalypse” rhetoric a bit, though. Too many bad loans and too many cars on the market may very well lead to a crisis for Detroit. But the volumes involved are still small compared to the total housing market, and there is no risk to the financial infrastructure of the United States, as there was in 2008. Nonetheless, the dangers are real, and car makers are looking for ways to lessen the scope of the problem.

There are traditional answers used by car makers in response to this kind of glut. Look for Detroit to push excess inventory into lease and rental fleet businesses. There will likely be some very favorable sales and deals to sway fence-sitter customers. Expect some dealers to push inventory into auction houses, not because they will be auctioned off any time soon, but just to get them off the books for now.

However, clever marketers are looking for trendy new ways to deal with the situation.

THE NEW MILLENNIAL MODE

It is not breaking news, but younger consumers really are more willing to try new options. Here are stats on the willingness to try autonomous cars:

(Source: KBB via Statista)

Guillaume Saint says we live in a “world of artificial intelligence, globalisation and urbanisation. Most young urbanites are tech-obsessed, air pollution is a health threat, and connection is achieved via smartphones. Owning a car lacks the appeal it once held. Millennial’s passion now lies firmly with technology as can be seen in their interest in pay per use models, immediacy, and the sharing economy.”

That’s especially true in the developing world:

(Source: Capgemini via Statista)

Hyundai U.S. CEO Dave Zuchowski also thinks that Millennials are different. “The customer is changing,” he told Wards Auto. “Millennials will be the No.1 purchasers of vehicles in 2017. They are twice as likely to consider alternative vehicles (and) they shop like no generation preceding them.

There’s a lot of talk about the Millennial tendency to look for new ways to connect with each other, and for new ways to achieve their goals. The American Dream of a house and a car in the suburbs may not be the preferred mode for these newfangled consumers. Personally, I have my doubts. When you look at crushing student loan debt, the rising costs of living and housing, and stagnant wages (IF you can get a job) — well it is no surprise that many Millennials have to rely on parents for health care and more after college.

Take a look at how people, in general, think about their purchasing power:

(Parago, via Statista) I wish I had more recent data than this, admittedly.

Purchasing power is down, says the LA Times. Moreover, “Between 2006 and 2014, the average U.S. household saw its take-home pay drop by more than 10% – and nearly 25% if you factor in the impact of inflation.” That’s according to TLNT.com. 

New research released this month by the Federal Reserve Bank of New York (hat tip: Kevin Drum) shows that “as tuition and student debt go up, homeownership rates go down.” Not really surprising, and I would bet that car ownership rates fall in parallel with homeownership.

So are Millennials embracing ride sharing because “Cars! Who needs them, amirite?” Or are big-ticket goods just too expensive? Tech-savvy hipsters embracing creative destruction and new models for modern capitalism? Or a new economically depressed underclass of people who have neither the opportunities nor the standard of living enjoyed by their less-well-educated parents? A mix of both, I guess. But no matter how you slice it, this is a demographic that the big car makers are looking at longingly.

THE ADVANTAGES OF CAR SUBSCRIPTIONS

Jonathan Baron at Dealer Marketing Magazine sees that these new subscription services are a part of a marketing strategy designed to appeal to younger customers. He writes:

• While more millennials and Gen Xers leave suburbia for the city and take on a new, less committal relationship to cars, the automotive industry is pivoting. With the introduction of car subscription and concierge services by major auto brands, a huge swath of consumers no longer feel they absolutely need to invest in a car that they own or lease. For auto manufacturers, the strategy is now to market the experience of driving, even more so than that of owning a car.

These new programs are intended to appeal to dealers as well as consumers. For example, subscription services are being billed as one solution to the problem of excess inventory. As Jose Puente, president of Flexdrive, told Auto Remarketing, “What we’re really trying to do is create more utilization out of an existing asset, which today is a car that’s sitting on a car dealership lot. … Those are just unused assets that are just sitting there and they’re costing somebody money every day.”

“Unused assets” means unsold cars. Any way to put those cars to work is a good thing for car dealers, who already have the infrastructure they need — their dealerships — to run a car subscription business.

Puente describes his Flexdrive program as a way to reach customers who cannot get loans. “There’s a lot of demand from consumers. And all that demand is really constrained through their ability to finance a car or their desire to even finance a car,” Puente said. “So by creating an efficient option for people to leverage existing operations that are already designed to have a very good user experience on where to go pick up a car or where to process a car for a retail consumer, you’re creating a lot more opportunity for those assets to actually start being productive.”

And he mentioned another huge draw for the dealer: “You’re also providing the retailer the opportunity to actually now have what they haven’t had, which is a recurring revenue stream.”

GM offers another example. In addition to its luxury subscription offering, which honestly is not going to account for that many units, the car maker is also partnering with Lyft to get its unused inventory into Lyft driver hands.

If these car subscription services manage to tap into new demographics and help reduce the problems of glut and serving people who have bad credit, then that will be an immediate win for car dealers and makers — and maybe a long-term win if they can keep those new customers happy.

Insider Take

A series of trends are combining to make car subscription services incredibly attractive to car makers. First, there are not enough customers, and in order to get new customers, car dealers are making some pretty shady subprime loans. Second, overproduction has led to a glut of cars. Third, economic and cultural trends are changing customer desires and expectations, especially for younger customers. The net result: these new subscription services are a perfect fit for the challenges car makers (and subscribers) face.