If you're in the market for a new vehicle, there may soon be a third option available instead of the traditional buy or lease agreements: subscription. BMW is the latest to join other automakers like General Motors' Cadillac, Geely Automobile Holdings' Volvo Cars division, and Ford (NYSE: F) in launching its own subscription service. Here's what "cars by subscription" is and what it means for investors.

The sharing economy and "no ownership"

Millennials -- the roughly 80 million people born between the early 1980s and late 1990s -- are having a big impact on the economy. Their thinking and decisions have been shaped by events like the global financial crisis and the technology boom that has made things like the smartphone indispensable parts of everyday life.

That change in thinking has given rise to the "sharing economy," where physical assets are shared across multiple users for a fee. The internet and the proliferation of data has made it easier for underutilized assets to be shared, spreading their cost across many users and effectively turning the physical asset into a service. One notable example is the sharing of property and rentals on Airbnb. Millennials are taking to the sharing model, sometimes forgoing ownership of things their parents and grandparents equated with the American dream. Cars are just the latest item to get hit with the "nownership" movement, and the auto industries' latest answer is car subscriptions.

A man wearing a suit and sunglasses sitting in a car, receiving the keys from someone off-screen.

Image source: Getty Images.

Subscription is similar to a lease in that the car is not owned by the driver; it's owned by the company offering the vehicle. Unlike a lease, though, subscriptions can be cancelled with little to no penalty. Payments are made month-to-month, and plans also include insurance, warranty, maintenance, and a set number of miles that can be used. Many services also allow the driver to swap cars with some notice via an app.

A smartphone with Ford's Canvas app running. A white Ford Focus car is displayed with options and monthly pricing.

Ford's Canvas service is available in San Francisco and Los Angeles. Image source: Ford Canvas.

A number of start-ups in cities like San Francisco are offering the service, but manufacturers are getting in on the action, too. Ford's "Canvas" service in Southern California starts at about $400 a month, and pricier plans like BMW's service, which will begin testing in Nashville, Tennessee, start at $2,000 a month.

A silver bullet or just an experiment?

For consumers in the market for a new car, subscription services offer a convenient and flexible option to get access to a vehicle. But what about the auto industry?

Subscription services are still very new; manufacturers have just begun testing them in the last year. Thus, it's hard to say how it will affect car makers, and earnings reports have seen no affect as of late. However, in the auto industry the number of cars sold is an important, yet very volatile, metric. Fluctuations in vehicles sold can send share prices soaring or crashing, so generating recurring revenue from subscriptions could go a long way toward smoothing out business results. A similar model -- software as a service (SaaS) -- has served many technology companies well over the years, making for more stable and predictable sales.

Automaker car-by-subscription services have all been launched in test markets within the last year or so, but Ford looks like an early winner. It started in San Francisco but quickly expanded to West Los Angeles. The service is also priced competitively -- starting at around $400 a month whereas other plans ramp up into the thousands of dollars per month pretty quick. My bet's on Ford getting Canvas to the mass market first. 

However, it's still too early to tell how many people will sign up for subscription cars, how it might affect auto manufacturing figures, and, ultimately, automakers' shareholders. Ford Canvas and other similar offerings add up to nothing more than an experiment at this point. Consumer trends are shifting, though. Younger demographics are used to paying monthly for things in exchange for flexibility, and car manufacturers could benefit from a stable source of revenue.

Subscription lies at the intersection of those wants, and investors could benefit. If subscription turns into a viable business, it could help smooth out stock performance and make the days of monthly auto retail figures history. In its place could be metrics measuring the number of subscribers and stable recurring revenue figures, transforming automakers into technology companies first instead of manufacturing outfits. My bet is we'll see these services expand to new areas soon.

Nicholas Rossolillo's clients own shares of Ford. The Motley Fool recommends BMW and Ford. The Motley Fool has a disclosure policy.