Car companies want to make billions by charging subscription fees for features like heated seats

But buyers don't want to pay up

The 2022 Lexus IS sedan. Lexus
  • Car companies expect to make billions charging customers recurring fees for vehicle features. 
  • Today, carmakers offer subscriptions for automatic high beams, remote start, and other functions. 
  • Manufacturers see dollar signs, but buyers aren't thrilled about the idea. 

How would you feel about paying $5 each month for the ability to lock and unlock your car from a distance through an app? What about a $25-per-month charge for advanced cruise control or $10 to access heated seats? What if those charges continued long after your car was paid off? 

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. And car buyers don't seem too thrilled about the idea. 

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, vice president and head of auto benchmarking and mobility development at J.D. 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 frustrating upcharge. 

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.

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. 

Understandably, drivers aren't nearly as excited about recurring fees as carmakers are. 

An April study by Cox Automotive found that 75% of consumers are not willing to subscribe to most vehicle features. Drilling down deeper, 92% of respondents said heated and cooling seats should be included in a car's up-front price, and 89% said the same for remote-start functions.

There's a bill working its way through New Jersey's legislature that would ban carmakers from charging on a subscription basis for features that use hardware already built into a vehicle and don't cost the company anything to provide over time. Hackers have helped car owners upgrade their vehicles for years, and subscription features could be their next target, Vice reported

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.

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Read the original article on Business Insider

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