Future of Cars going to be a Subscription Fright

As cars get more costly to make and profit margins decline, automakers are coming up with new and despicable ways to squeeze more money out of their clients.

Subscription-based access to vehicle features, like remote-start vital fobs or heated seats, 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 sold $18-a-month subscriptions to heated seats in various nations, including South Korea.

The German automaker had previously tried and failed to get customers to pay $80 a month for a permit 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.

Heated seats, remote start key fobs, and other creature comforts are likely to subject to monthly or annual fees.

Cars are richer in computers and software than ever before, making it feasible for automakers to add new features or patch issues on the fly with over-the-air software updates.

It has also presented these automakers with new ways of making money. BMW isn’t alone — Volkswagen, Toyota, Audi, Cadillac, Porsche, and Tesla have dabbled in subscription models for specific 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 surveyed 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.
  • Creature comforts, like heated or cooling seats or steering wheels

Most of the subscription plans seem to come mainly from luxury automakers, which makes sense given that their customers are primarily wealthy and can absorb an annual or monthly fee more easily. 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 electric cars, connected and autonomous.

Last year, General Motors said it earned over $2 billion in in-car subscription service revenue, which the company expects to grow to $25 billion by the end of the decade. That would put GM in the same league as Netflix, Spotify, and Peloton.

GM has approximately 16 million vehicles in the US, about a quarter including features for which customers are paying subscriptions. “Our research reveals that with the proper mix of thrilling offerings, customers are willing to expend $135 per month on average for services and products,” SVP of innovation and growth at GM, Alan Wexler, said during a presentation.

It 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 ten years old or whether it’s been sold two or three times over.

That’s changed in recent years, thanks partly 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 various 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 total capacity.

Some experts predict this could 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.

It seemed like the car itself would become a subscription for a while. Several automakers thought they could charge people a monthly fee to access various models as an alternative to ownership or vehicle leases. However, it turns out that people weren’t into it: Ford, BMW, Cadillac, and Mercedes-Benz have pulled the plug on their vehicle subscription services. Other companies are still plugging away, but the ideal price point remains elusive.

It may all seem preordained, but it’s not guaranteed, especially if car companies flub the sales pitch. Customers essentially pay companies to remove a software block on existing functionality for heated seats or range-limited battery packs.

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, looks like automakers trying to bilk their customers for things they should only have to pay for once.

Cars are more expensive than ever, with the average car price cresting $48,000 for the first time 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 they will not likely embrace the idea of paying even more money regularly 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; Automakers will have to back down on either pricing or how many things they want to turn into subscriptions.