How are Automotive Companies becoming Subscriptions Focused?
The way we purchase and use cars is currently undergoing a revolution. The integration of technology into the automotive space is shifting the business model of cars to be more similar to the technology sector. Motorists are increasingly being forced to pay tacked-on fees and even sign up for pricey subscriptions to get basic features on their cars — and auto giants are telling investors this is only the beginning. One of the major changes in recent years has been BMW’s move to charge car owners in several countries $18 per month to turn on the heated seats in their own vehicles sparked a public outcry, with some would-be buyers calling the move a “dealbreaker.” But it’s not just BMW that is pushing subscription car models: industry watchers and consumer advocates warn that the nickel-and-diming threatens to become standard as automakers chase a recurring revenue model pioneered by Elon Musk’s Tesla. Toyota, meanwhile, started charging $8 a month to remotely start vehicles using a key fob — a feature that had previously been free. Which other car companies offer subscriptions? - Volkswagen, Porsche, and Audi lately have explored similar subscriptions. The public outcry has been mainly sparked by shifting previously available free features to optional automotive subscription extras.
Consumer Perception of The Car of the Future
Source Molex Automotive Survey
General Motors recently started requiring buyers of Buick, GMC, and Cadillac Escalade car subscription models to pay $1,500 for the mandatory “option” of buying three years of OnStar service, which includes features like voice control and the ability to unlock vehicles from a mobile app. OnStar had previously been optional since GM introduced it in 1996. It’s just the beginning, industry experts say, as manufacturers look to transform cars from simple goods for sale into bases for recurring revenue that could fill coffers for years or decades. General Motors has told investors it aims to generate up to $25 billion in software and services subscription revenue annually by 2030 — up from an estimated $2 billion in 2021. Stellantis (Fiat Chrysler) is shooting for $23 billion by 2030. This is just a small share of the global automotive subscription market.
Automotive Subscription Market – How Car Subscription Works
The automotive feature subscription market is a relatively new trend that has emerged in the automotive industry in recent years. So what does a car subscription offer? It involves car manufacturers offering customers the ability to subscribe to certain features and services on a monthly or yearly basis, rather than buying them outright. This model allows customers to access features and services that they might not be able to afford upfront, or that they only need temporarily. It also enables car manufacturers to generate recurring revenue and improve customer loyalty.
Some of the features and services that are typically offered through automotive subscription plans include connected services, such as real-time traffic updates and remote vehicle monitoring, as well as advanced driver assistance systems (ADAS), such as lane departure warnings and automatic emergency braking. Some manufacturers also offer subscription-based access to luxury features like heated and ventilated seats, premium audio systems, and panoramic sunroofs.
Of course, we cannot discuss automotive subscriptions without talking about one of the pioneers – Tesla. electric automaker charges $9.99 per month to access music streaming, satellite maps, and other features. It also asks a whopping $200 per month or a $12,000 one-time payment to access its experimental “Full Self-Driving” option. In 2022, this was increased to $15,000 for a one-time payment or $250 per month.. Just 25% of American car buyers say they would potentially be willing to pay extra for subscription car features, according to a Cox Automotive survey in 2022. While luxury auto brands are taking the most flak for subscription features, mass-market automakers will increasingly embrace the strategy in the coming years. This will follow a similar process to the transformation of the airline model which hit consumers with fees for services that were previously free, such as carry-on baggage and seat selection. While public perception is currently quite low on this idea, potential change in the future will continue to drive the push for automotive feature subscription services.
Customer Insight Into Payment Subscription Services
Source: Cox Automotive
The automotive feature subscription market is expected to grow significantly in the coming years, with some estimates suggesting that it could be worth billions of dollars by 2025. However, there are also challenges associated with this model. For example, some customers may be hesitant to sign up for subscription services, preferring to own their vehicles outright. There are also concerns about the potential for confusion or frustration among customers if they subscribe to features that are not available on all vehicles, or if they are not aware of the terms and conditions of their subscriptions.
Despite these challenges, the automotive feature subscription market represents a significant opportunity for car manufacturers to generate new revenue streams and provide customers with innovative, flexible ways to access the features and services they want in their vehicles.
Emerging Business Models in Automotive
The automotive industry is undergoing significant changes in terms of business models, driven by advances in technology and changes in consumer behavior. Some of the key ways in which the industry is changing include:
Consumer Insight into Features included in Car of the Future
Source Molex Automotive Survey
Electric vehicles (EVs): The rapid growth of the electric vehicle market is leading to changes in the way cars are designed, manufactured, and sold. With EVs, there is a move away from the traditional model of selling cars with internal combustion engines to a new model centered on selling battery packs, motors, and other key components. This is leading to a shift in the power dynamic between car manufacturers and suppliers, as well as the emergence of new players in the market.
Subscription-based models: As mentioned earlier in the article, there is a growing trend towards subscription-based models for car features and services. This allows car manufacturers to offer customers access to the latest technologies and services without the need for a large upfront investment, and it provides a more predictable revenue stream for car manufacturers.
Mobility services: The rise of mobility services, such as ride-hailing and car-sharing, is leading to changes in the way cars are used and owned. Instead of buying a car, many people are opting to use ride-hailing and car-sharing services for their transportation needs. This is leading to a shift in the business models of traditional car manufacturers, who are now looking to offer their own mobility services.
Connected Car Revenue
Source: Counter Point Research
Connected cars: Advances in connected car technology are leading to changes in the way cars are designed, manufactured, and sold. With connected cars, car manufacturers can offer new services, such as predictive maintenance and over-the-air software updates, which can improve the customer experience and deepen customer relationships.
These changes in the automotive industry are leading to a more dynamic and competitive marketplace, with new players entering the market and traditional players adapting to new business models. The industry is also becoming more focused on sustainability, innovation, and customer-centricity, which is likely to shape the future of the automotive industry in the years to come.
Connected Cars Adoption
Source: Insider Intelligence
Automotive Subscription Model
Automotive companies are increasingly utilizing subscriptions in various ways to offer customers access to a range of services and features. One of the primary examples is connected services. Automotive companies are offering connected services, such as in-car entertainment, navigation, and safety features, through subscriptions. The selling point of this is to offer customers to access the latest technology and services without having to make a large upfront investment. This also provides automotive companies with continuous revenue rather than a simple upfront payment. In a similar vein, Automotive companies are also offering maintenance and support subscriptions, which provide customers with access to regular maintenance, repairs, and technical support. This can help to ensure that customers are satisfied with their experience and can keep their vehicles running smoothly.
Finally, Automotive companies are also offering premium packages, which include a range of features and services, such as premium sound systems, advanced safety features, and premium interior materials. These packages can be purchased as a one-time purchase or through a subscription, depending on the customer's preferences. This ties into Vehicle Subscriptions. Automotive companies are offering vehicle subscriptions, which allow customers to access a range of vehicles on a monthly or yearly basis, rather than purchasing or leasing a vehicle outright. This can be especially appealing for customers who want the flexibility to switch between vehicles regularly.
Automotive Subscription Consumer Interest
Source: AutoPacific
Overall, automotive companies are using subscriptions in a variety of ways to offer customers access to a range of services and features. This allows automotive companies to stay competitive in a rapidly changing market and create a more predictable revenue stream, while also providing customers with a more convenient and flexible experience. However, it is important for automotive companies to be transparent about pricing and billing practices and to offer clear and straightforward explanations of the benefits and costs of their subscription services. This can help to build trust and confidence with customers and ensure that they are satisfied with their experience, especially as customers become increasingly aware of the various paywalled features in cars, both from a hardware and software perspective.
Subscription across all Hardware
This sort of subscription while new in the automotive world has been adopted by a number of hardware industries historically. The enterprise sector in particular has been a prime end sector for hardware subscriptions. However, even among consumers hardware subscriptions surrounding mobile devices and telecom/cable solutions have been in use for a number of years. A significant portion of Hardware companies across ecosystems are shifting towards a subscription model for various reasons, including the need to stay competitive in a rapidly changing market and the desire to create a more predictable revenue stream. In a subscription model, customers pay a recurring fee for access to a product or service, rather than purchasing it outright, thereby ensuring a monthly income for a company. There are several ways in which hardware companies are adopting a subscription model:
Software as a Service (SaaS): Hardware companies are increasingly offering their hardware upfront but their software as a service, which allows customers to access the latest updates and features on an ongoing basis. This allows hardware companies to generate recurring revenue from software and services, while also providing customers with a more convenient and flexible experience.
Product-as-a-Service (PaaS): Hardware companies are also offering their products as a service, which allows customers to rent or lease hardware rather than purchasing it outright. This can be especially appealing for customers who need access to the latest hardware but don't want to make a large upfront investment.
Service and Support Subscriptions: Hardware companies are also offering service and support subscriptions, which provide customers with access to technical support, maintenance, and upgrades. This can help to ensure that customers are satisfied with their experience and can keep their hardware up-to-date.
Apple Hardware Subscription Plan
Source: Counter Point Research
Overall, the shift towards a subscription model is allowing hardware companies to maintain consistent revenue, while also ensuring customers don’t need to pay a significant amount upfront. The integration of service models in various industries has already exposed the positive and negative interactions surrounding this model to customers. The technology industry, including companies that manufacture computer hardware, smartphones, and other consumer electronics, is increasingly offering software-as-a-service and product-as-a-service options. For example, smartphone manufacturers now increasingly offer software updates and security patches on a regular basis, which can be accessed through a subscription. The home automation industry is also embracing subscription models, with companies offering customers access to smart home devices and services on a recurring basis. This allows customers to access the latest technology and services without having to make a large upfront investment.
This is not limited to consumer devices either. Industries that rely on industrial equipment, such as manufacturing, construction, and transportation, are also adopting subscription models. Both consumers and companies are increasingly utilizing subscription models to purchase medical devices as well. The medical device industry is shifting towards a subscription model, with companies offering access to medical devices and services on a recurring basis. This seems to only be the start with a number of companies looking to even hide certain features of their devices behind a paywall to try to get the maximum revenue from a singular customer.
Car Feature Subscriptions – A Nightmare for Consumers?
The automotive industry is undergoing a significant shift towards subscription-based models for various car features, such as infotainment systems, advanced safety technologies, and connectivity services. This change is driven by several factors, including the increasing demand for personalized and flexible driving experiences, advancements in connected car technology, and the need for a more sustainable business model. This allows car owners to choose the features they need and pay for them on a monthly or yearly basis, much like they would with a cell phone or streaming service – as an alternative to car ownership.
Customer Perception of New Features, By Income Level
Source: GFK
For car manufacturers, subscription services offer a more predictable revenue stream and the opportunity to deepen customer relationships. They can also use data from connected cars to better understand customer needs and preferences and offer targeted, value-added services. However, there are also challenges to overcome in the shift to subscriptions. For example, there is a need for robust data privacy and security measures to ensure that customer information is protected. Additionally, there is a need for clear and transparent pricing and billing practices to avoid confusion or dissatisfaction among customers. The shift towards subscription-based models for car features is a significant development in the automotive industry that has the potential to benefit both car manufacturers and customers.
Consumer Perception of the Automotive Subscription Model
While automotive manufacturers are gung-ho about the adoption of the subscription model, the consumer perception certainly seems to be mixed at best and firmly against as a worst-case scenario. The shift towards subscription-based models for car features is a relatively new development, and consumer views on this change are still evolving. However, based on available data and research, it can be inferred that consumers generally have a mixed view of this change. On the one hand, some consumers view subscription-based models as a convenient and flexible way to access the latest technologies and services for their cars. They like the idea of being able to choose the features they need and pay for them on a monthly or yearly basis, without the need for a large upfront investment. This is especially appealing to consumers who are looking for a more personalized driving experience. But ultimately, it raises the question – Is a car subscription worth it?
Customer Perception of Key Automotive Subscription Services
Source: Cox Automotive
On the other hand, some consumers are concerned about the long-term cost of subscriptions, as they may end up paying more in the long run compared to purchasing features outright. Additionally, some consumers may not be comfortable with the idea of paying for services on an ongoing basis and prefer to have full ownership of their car and its features.
Consumer views on the shift towards subscription-based models for car features are mixed, and it ultimately comes down to personal preferences and financial considerations. However, it is important for car manufacturers to be transparent about pricing and billing practices and to offer clear and straightforward explanations of the benefits and costs of their subscription services. This can help to build trust and confidence with consumers and ensure that they are satisfied with their experience.
Conclusion - Where is the Automotive Industry Headed?
The trend of locking car features behind a paywall is becoming increasingly common among automobile manufacturers. While this practice may be profitable for these companies, it can have a negative impact on consumer perception and adoption of these features. One of the main reasons why consumers may be hesitant to adopt these paywalled features is due to the perception that they are being nickel-and-dimed for features that used to be included in the base price of the vehicle. In some cases, consumers may also view this practice as a form of planned obsolescence, as they may feel pressured to upgrade their vehicle or pay additional fees to keep their car up to date with the latest features. Another concern is the potential for these paywalled features to create a sense of inequality among consumers. Those who can afford to pay for these additional features may have an advantage over those who cannot, which could ultimately result in a societal divide between those who have access to the latest technology and those who do not.
Moreover, locking features behind a paywall could have negative effects on the overall perception of the automotive industry. Consumers may view this practice as a sign of greed and a lack of concern for customer satisfaction, leading to decreased trust and loyalty towards these companies. While it is understandable that car manufacturers need to make a profit, it is important for them to consider the long-term consequences of these paywalled features. Instead of solely focusing on short-term financial gain, manufacturers should prioritize consumer satisfaction and retention in order to build a positive reputation and secure their place in the market.
This trend of locking car features behind a paywall is a controversial issue that may have negative effects on consumer perception and adoption of these features. It is important for car manufacturers to consider the potential consequences of these practices and prioritize consumer satisfaction in order to build a positive reputation and maintain a loyal customer base. Thus, while the automotive manufacturers are steamrolling ahead with subscription-based features, the adoption of these features may have some backlash, at least in the short term. The long-term scenario, however, remains a bit more open as consumer perception changes with the advent of connected cars and other such feature-driven vehicles.
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