As cars get more expensive to make and profit margins dwindle, automakers are coming up with new and loathsome ways to squeeze more money out of their customers. Subscription-based access to vehicle features, like heated seats or remote-start key fobs, are the latest attempt to charge people for things their car already came with. The question is whether customers are going to lay down and take it.
Earlier this week, some media outlets noticed that BMW was selling $18-a-month subscriptions to heated seats in a number of countries, including South Korea. The German automaker had previously tried and failed to get customers to pay $80 a month for access to Apple CarPlay and Android Auto — features that are otherwise free in other companies’ vehicles. But even after BMW reversed its decision to force people to pay for something that used to be free, it was clear that it wouldn’t stop there.
It’s a troubling trend, considering how much people freaking hate it
Cars are more full of computers and software than ever before, which has made it possible for automakers to add new features or patch problems on the fly with over-the-air software updates. This has also presented these automakers with new ways of making money. BMW isn’t alone — Volkswagen, Toyota, Audi, Cadillac, Porsche, and Tesla have all dabbled in subscription models for certain options, such as driver-assist features or voice recognition. It’s a troubling trend, considering how much people freaking hate it.
Earlier this year, Cox Automotive conducted a survey of 217 people who intend to buy a new car over the next two years. Only 25 percent said they’d be willing to pay a monthly or annual fee to unlock a feature in their vehicle. The remaining 75 percent said piss off.
Of those 25 percent that don’t mind subscription, the features they’d be willing to pay an annual or monthly fee generally fell into three buckets: safety features like lane-keep assist or automatic emergency braking (although automakers have agreed to make the latter standard in new vehicles starting this year); vehicle performance features, like extra torque or horsepower; and creature comforts, like heated or cooling seats or steering wheels.
“For automakers to achieve their revenue aspirations by charging consumers extra for features and services, they have work to do,” Cox’s Michelle Krebs said.
“For automakers to achieve their revenue aspirations by charging consumers extra for features and services, they have work to do”
Most of the subscription plans seem to be coming mainly from luxury automakers, which makes sense given that their customers are mostly rich and can more easily absorb an annual or monthly fee. But industry analysts have said that subscriptions are coming to mass-market vehicles as mainstream automakers look for new revenue streams to help fund their enormously expensive plans to build vehicles that are electric, connected, and autonomous.
Last year, General Motors said it earned over $2 billion in in-car subscription service revenue, a number the company expects to grow to $25 billion by the end of the decade. That would essentially put GM in the same league as Netflix, Spotify, and Peloton.
GM has approximately 16 million vehicles on the road in the US, about a quarter of which include features for which customers are paying subscriptions. “Our research indicates that with the right mix of compelling offerings, customers are willing to spend $135 per month on average for products and services,” Alan Wexler, SVP of innovation and growth at GM, said during a presentation at the company’s investor event in December 2021.
This would represent a titanic shift in how vehicles are marketed and sold. Typically, a car’s factory-equipped options are permanent, regardless of whether it’s 10 years old or whether it’s been sold two or three times over.
This would represent a titanic shift in how vehicles are marketed and sold
That’s changed in recent years, thanks in some part to the popularity of Tesla and the advent of over-the-air software updates. Elon Musk’s company pioneered microtransactions and currently sells access to a variety of features after purchase. It even used to ship cars with battery packs that had their range limited by software, and owners could pay a fee to unlock the full capacity. Some experts predict this could actually encourage automakers to provide more software updates to help vehicles evolve after purchase. But the idea that automakers will keep their worst impulses in check seems naive on the surface.
For a while, it seemed like the car itself would become a subscription. A number of automakers thought they could charge people a monthly fee to access a variety of different models as an alternative to ownership or vehicle leases. Turns out that people weren’t into it: Ford, BMW, Cadillac, and Mercedes-Benz have all pulled the plug on their vehicle subscription services. Other companies are still plugging away, but the ideal price point remains elusive.
This may all seem preordained, but it’s not a guarantee, especially if car companies flub the sales pitch. In the case of heated seats or range-limited battery packs, customers are essentially paying companies to remove a software block on a functionality that already exists. Some customers might be persuaded to pay an extra fee on something that requires constant software updates, like automated traffic alerts. Other stuff, like heated steering wheels or Apple CarPlay, just looks like automakers trying to bilk their customers for stuff they should only have to pay for once.
“Automakers sure want customers to get used to this, but frankly, I’m skeptical this will fly,” said Sam Abuelsamid, principal analyst at Guidehouse Insights, an industry consulting firm.
“I’m skeptical this will fly”
Abuelsamid noted that cars are more expensive than ever, with the average car price cresting $48,000 for the first time ever this month. And with the industry shifting to producing more electric vehicles, that average cost is expected to rise even more. People are already feeling squeezed by dealers, so it’s not likely they will embrace the idea of paying even more money on a recurring basis for access to certain comfort features.
Unless automakers lower the purchase price of new vehicles to offset the subscriptions, customers aren’t likely to afford all the nickel and diming, Abuelsamid said. “I think automakers will have to back down on either pricing or how many things they want to turn into subscriptions,” he said.