In 2021, credit card statements are loaded with routine monthly charges: Netflix for video, Spotify for music, XBox Game Pass for gaming, Peloton for fitness—and so on, with meal kits, wine boxes, and high-protein, low-carb cereals. The financial services company UBS estimates that the “subscription economy,” powered by pandemic-induced changes in buying habits, will grow 18 percent annually for the next four years, hitting $1.5 trillion in 2025.
Now automakers want to join the party.
The idea is simple: We’ll sell you a car with a dash cam, or that can be driven hands-free, or that can coach you with telematics data to be a better driver. But if you actually want to use any of the new toys, you’ll have to pay extra. Credit Tesla with popularizing the notion that cars could be updated with software even after they're driven off the lot.
General Motors told investors this month that subscription services could bring in an additional $20 billion to $25 billion annually by 2030. The company says 4.2 million customers already pay for its OnStar security services, which include an app that costs $15 a month. Electric vehicle startup Rivian said in recent financial filings that it could bring in an additional $15,500 over the life of each car with software-enabled services, including an autonomous driving feature and subscriptions for infotainment, internet connectivity, and diagnostics. BMW last summer created buzz—and consternation—with plans to charge, through subscription fees, for features like heated seats. In the US, the automaker offers subscriptions for an onboard dash cam and a remote car starter.
Over the past few years, automotive companies have laid out plans to transform from “being an industry that sells products to an industry that sells services and products,” says Brian Irwin, who heads the automotive and mobility practice at the consultancy Accenture. Today’s vehicles come with multiple computer chips, cameras, and sensors—and thus, the tantalizing opportunity to use detailed data to both create and sell new products.
The industry’s move towards electrification might make the idea more attractive. “Consumers see EV as a new technology that's enabling new things,” says Alan Wexler, who oversees connected services and data insights at General Motors. That means they’re willing to think about paying for cars in a new way too. In fact, carmakers would love it if you started thinking of your wheels as a “platform,” a smartphone-like device that will require a few extra app purchases to fit neatly into your lifestyle.
Automakers have long been attracted to the idea of software-enabled add-ons, because manufacturing vehicles is a low-margin business—and building software is not. Developers can build a product once and push it out to millions, rather than offer more customization as the car is built. It helps automakers’ bottom lines when the average car on the road is almost 12 years old. It also offers an opportunity to cement customers to a brand, the same way iPhone users keep buying Apple products.
Plus, there’s a sad and sneaky secret to subscriptions: People forget they’ve subscribed, allowing businesses to charge their credit cards into perpetuity, or at least until someone finally takes a magnifying glass to their credit card statement. (Federal regulators are reportedly studying how to make it harder for companies to trap consumers with automatic renewals and subscriptions.)
It’s an open question, however, whether drivers will get on board with subscription payments. Car buyers might succumb to “subscription fatigue,” as they realize that unbundling products into monthly charges sometimes costs more in the end, and refuse to purchase yet another one. They could also decide that the offered features simply aren’t worth the money. “The giant gap in the logic is, nobody has exactly cracked the code to what you can get people to subscribe to long-term,” says Mike Ramsey, an automotive analyst with Gartner.
Internal research from General Motors suggests that customers are willing to pay up to $135 a month for the right mix of products and services, the company says. That could include enhanced map services, data analysis for business owners who run fleets of GM (and non-GM) vehicles, and software-enabled performance upgrades that boost acceleration. The company also touts a future in which it might allow outside developers to create apps to run on its in-car platform, as smartphone makers do today.
Still, subscriptions and aftermarket charges for features that once came standard have already generated pushback. In 2019, BMW reversed a plan to charge drivers $80 a year to use Apple CarPlay in their vehicles. The company faced similar resistance last summer, when it announced plans to charge for what it calls “digital personalizations,” like lane-keep assistance features or heated steering wheels. Jay Hanson, a spokesperson for BMW, says these are “part of a global BMW strategy,” but declined to discuss what the company has learned about customers’ willingness to pay. In general, experts say, carmakers should be cautious about charging drivers for basic safety and security features, which could antagonize drivers by creating the appearance that they’re being upsold to have a safe ride.
The magic of marketing may help. “Subscriptions can be packaged in different ways to different demographics, depending on whether it’s a scary word or foreign concept to them,” says Accenture's Irwin. After all, many US drivers already make monthly car payments. Think of that cool new feature less as a subscription, and more as the cherry on top of your regular bill.