Car companies stand to make billions by charging you monthly fees for add-on features like heated seats
Car companies stand to make billions by charging you monthly fees for add-on features like heated seats
Tim Levin
11 hours ago
The 2022 Lexus IS sedan.
As vehicles become increasingly connected to the internet, car companies aim to rake in billions by having customers pay monthly or annual subscriptions to access certain features. Not content with the relatively low-margin business of building and selling cars, automakers are eager to pull down Silicon Valley-style profits. But unlike with Netflix, you won't be able to use your ex-girlfriend's uncle's login in your new BMW.
For automakers, the advantage of this model is clear. Not only do they get a stream of recurring revenue for years after an initial purchase, they can hope to maintain a longer-term relationship with the customer and build brand loyalty, said Kristin Kolodge, an analyst at JD Power.
This approach can also allow carmakers to streamline manufacturing by building cars to more uniform specifications, Mark Wakefield, who runs the automotive and industrial practice at the consulting firm AlixPartners, told Insider. Down the line, owners can add on the features they want à la carte.
It's all made possible by the advent of over-the-air software updates, which were pioneered by Tesla around a decade ago and are now entering the mainstream. Today's vehicles are more internet-connected and computerized than ever before, meaning car companies can reach deep inside a vehicle to add new capabilities and tweak things from a distance.
Brands including Lexus, Toyota, and Subaru invite owners to pay for the convenience of being able to lock or start their cars remotely through an app. In some BMWs, you can pay to unlock automatic high-beam headlights, which dim for oncoming traffic. In 2020, BMW floated the idea of pay-as-you-go heated seats and steering wheels. General Motors and Ford both offer subscription plans for their hands-free highway driving systems.
Some people may welcome the ability to only pay for the features they actually want, rather than a big bundle of add-ons. But car companies still haven't figured out exactly what customers are willing to pay for, and what feels like a turnoff.
In 2019, BMW abandoned a plan to charge $80 per year for Apple CarPlay after widespread pushback. In December, Toyota said it would review a subscription plan that unintentionally paywalled use of the key fob for remote start.
"I think we're going to see some interesting ebbs and flows of what really sticks," Kolodge told Insider. A JD Power survey published in January found that 58% of people who use an automaker's smartphone app wouldn't be willing to pay for it.
Automakers run the risk of making customers feel like they're paying twice — once for a function to be built into a vehicle and again to activate it, Kolodge said. They may have more luck asking people to subscribe to brand-new services, rather than familiar features, she added.
Still, automakers see dollar signs. Stellantis (formerly Fiat Chrysler), Ford, and GM each aim to generate at least $20 billion in annual revenue from software services by 2030.
Over-the-air capabilities open up huge opportunities for carmakers to introduce new subscription or pay-per use features over time, Wakefield, of AlixPartners, said. Someday, you may be able to fork over extra to make your car more efficient, sportier, or — in an electric vehicle — unlock extra range for road trips.
Car companies stand to make billions by charging you monthly fees for add-on features like heated seats
Tim Levin
11 hours ago
The 2022 Lexus IS sedan.
- Car companies want to rake in billions by asking customers to subscribe to vehicle features.
- Today, carmakers offer subscriptions for automatic high beams, remote start, and other functions.
- Consumers don't seem as excited about the trend as car companies.
As vehicles become increasingly connected to the internet, car companies aim to rake in billions by having customers pay monthly or annual subscriptions to access certain features. Not content with the relatively low-margin business of building and selling cars, automakers are eager to pull down Silicon Valley-style profits. But unlike with Netflix, you won't be able to use your ex-girlfriend's uncle's login in your new BMW.
For automakers, the advantage of this model is clear. Not only do they get a stream of recurring revenue for years after an initial purchase, they can hope to maintain a longer-term relationship with the customer and build brand loyalty, said Kristin Kolodge, an analyst at JD Power.
This approach can also allow carmakers to streamline manufacturing by building cars to more uniform specifications, Mark Wakefield, who runs the automotive and industrial practice at the consulting firm AlixPartners, told Insider. Down the line, owners can add on the features they want à la carte.
It's all made possible by the advent of over-the-air software updates, which were pioneered by Tesla around a decade ago and are now entering the mainstream. Today's vehicles are more internet-connected and computerized than ever before, meaning car companies can reach deep inside a vehicle to add new capabilities and tweak things from a distance.
Brands including Lexus, Toyota, and Subaru invite owners to pay for the convenience of being able to lock or start their cars remotely through an app. In some BMWs, you can pay to unlock automatic high-beam headlights, which dim for oncoming traffic. In 2020, BMW floated the idea of pay-as-you-go heated seats and steering wheels. General Motors and Ford both offer subscription plans for their hands-free highway driving systems.
Some people may welcome the ability to only pay for the features they actually want, rather than a big bundle of add-ons. But car companies still haven't figured out exactly what customers are willing to pay for, and what feels like a turnoff.
In 2019, BMW abandoned a plan to charge $80 per year for Apple CarPlay after widespread pushback. In December, Toyota said it would review a subscription plan that unintentionally paywalled use of the key fob for remote start.
"I think we're going to see some interesting ebbs and flows of what really sticks," Kolodge told Insider. A JD Power survey published in January found that 58% of people who use an automaker's smartphone app wouldn't be willing to pay for it.
Automakers run the risk of making customers feel like they're paying twice — once for a function to be built into a vehicle and again to activate it, Kolodge said. They may have more luck asking people to subscribe to brand-new services, rather than familiar features, she added.
Still, automakers see dollar signs. Stellantis (formerly Fiat Chrysler), Ford, and GM each aim to generate at least $20 billion in annual revenue from software services by 2030.
Over-the-air capabilities open up huge opportunities for carmakers to introduce new subscription or pay-per use features over time, Wakefield, of AlixPartners, said. Someday, you may be able to fork over extra to make your car more efficient, sportier, or — in an electric vehicle — unlock extra range for road trips.
