news reports often get people angry, but wow, did people get mad over an article published last summer about BMW. It described how the German automaker now sold some features of its vehicles as subscriptions, including an offering in South Korea that charged $18 for things that drivers are accustomed to coming standard, such as heated seats.
Subscription-weary consumers reacted with outrage. Spotify, Netflix, razors, coffee: All now come with monthly fees. But being asked to subscribe to heated seats seemed to point to something broken at the core of the money-for-stuff compact that is global capitalism. If a car company could give or take away access to tuchus warmers with the press of a button in faraway Germany, what did it mean to “own” anything?
BMW of North America eventually put out a statement saying it would always allow customers to buy features permanently up front with a vehicle. It also defended offering subscriptions for features such as dashcams and remote start functions to provide “flexibility.” The furor died down, as furors do.
But in many ways, the BMW heated-seat kerfuffle was an early skirmish in a larger campaign. Almost every global automaker has offered some kind of subscription, such as Tesla’s Full Self-Driving ($15,000 up front, or $99 to $199 a month), General Motors’ crash response and roadside assistance system OnStar (between $25 and $50 a month), or Toyota’s Remote Connect, which offers remote start among other goodies ($8 a month or $80 a year).
It's no surprise that global carmakers are jealous of the fantastical returns of big tech firms like Microsoft and Apple: Sell software, get Googley returns, or so the theory goes. General Motors alone has said it wants to wring some $25 billion in annual revenue out of subscriptions by 2030. Its internal research suggests car buyers are willing to spend an average of $85 a month, CEO Mary Barra said last year.
Automakers’ latest target in the subscriptions push—or shakedown, depending where and how comfortably you’re sitting—is used car owners. The average lifespan of passenger vehicles has steadily ticked up in recent years and now sits at around 12 years in the US, with cars cycling through two or three or four owners before they hit the scrap heap. Carmakers are working on making those owners into subscribers too.
“It’s a massive market,” says Gary Silberg, who heads the global automotive sector at the accounting and advisory firm KPMG. He says automakers are trying to use the increasingly software-stuffed car to resolve a “silly” situation. “You spend all the money building the car, you spend all the money designing it and building factories, and yet you don’t get to talk to your customer,” Silberg says. More connected vehicles and the apps that go along with them mean that automakers can. “Connected cars have completely changed the landscape of customer interaction,” says Michael Bensel, vice president of mobility and connected services at Cariad, the Volkswagen Group’s automotive software subsidiary. He describes the company’s relationship with car buyers as shifting “from occasional contact at dealerships at times of purchase, maintenance, or repairs, to continuous direct customer contact during the entire ownership period.”
Automakers are just starting to figure out how to transform used car owners into subscribers. Today, most of them reach used-vehicle owners either when someone buys a used vehicle through a certified dealer (about one-third do in the US) or when that new owner seeks out its app. (Automakers also reach out to owners in the case of recalls, through highly regulated contact with local motor vehicle departments.)
General Motors spokesperson Anna Yu declined to share specific numbers on subscribers who drive used cars, but she says that “second owners are some of our most loyal customers”—often because they proactively reached out to ask about subscription-based products like OnStar or Super Cruise, its advanced driver assistance feature.
Cariad’s Bensel says the VW-owned company is able to push “highly targeted digital campaigns”—that is, ads—directly onto drivers’ control panels or apps. The connectivity now present in some new and newer used cars, he says, also allows Cariad to pull data that help VW “better understand the usage of our vehicles as well as customer needs over a lifetime.” More data, in other words, means automakers could maybe build better products attractive to drivers of cars both new and used—and likely helps tune those digital ads too.
Drivers of used cars whom automakers have a direct line to—whether by email or app—are often offered free trial periods aimed at hooking a consumer to the subscription model of car ownership. But many drivers of used cars aren’t so easily targeted, especially those who don’t buy their cars through automakers’ dealer-controlled networks.
A 2021 survey of more than 2,000 US car owners led data and analytics company LexisNexis Risk Solutions to estimate that 83 percent of owners of used cars with built-in connectivity “remain untapped”—meaning automakers had left money on the table.
Since 2021, LexisNexis has offered a service called Owner Check aimed at helping automakers root out used car owners. It can link “disparate data sets” to determine when a car has a new owner, and conversely, when a person has a new car, says Dave Nemtuda, the company’s head of automotive product. The company won’t disclose which automakers use Owner Check, but it says companies accounting for 65 percent of the global auto market are either testing or in discussions about the service.
All these new subscription offerings create a new way for automakers to compete—and to position their brand in relation to others. Volvo’s deputy CEO Björn Annwall says the company feels it’s unfair to charge extra to simply activate hardware that’s already in a car—“as in the heated seat,” he says—but it's OK to charge for more complex software. An example of that might be a parking aid that stitches images together from multiple cameras. “This is partly market research, but partly it’s just common sense,” he says.
It’s a reasonable theory, but like the subscription strategies of all automakers, one that’s largely untested. Ondrej Burkacky, a senior partner with the consulting firm McKinsey who works in automotive software, says some industry projections for subscriber counts and revenue have proven overly optimistic.
The unanswered question, he says, is this: “What are people really going to pay for?” VW’s Cariad reported a $2 billion annual loss last year, amidst software product delays, and it is not the only automaker that has struggled to build easy-to-use systems. As these companies’ software and subscriber drives expand to owners of used cars, so too will the potential for their hopes to be dashed—or to get people really, really mad.
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April 06, 2023 at 07:00PM
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Your Used Car May Soon Come With Subscription Fees - WIRED
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