News reports often make people mad, but this article about BMW that was published last year made people mad. The article described how BMW now sells some of its features as subscriptions. It also included an offering in South Korea that charged $18 for heated seats.
Subscription-weary customers reacted with outrage. Spotify, Netflix, and razors coffee – All come with monthly fees. However, being asked to sign up for heated seats seems to indicate that something is wrong at the heart of global capitalism’s money-for-stuff contract. What did it mean to “own” if a car company could grant or deny access to tuchus warmers with a click in faraway Germany?
BMW of North America finally issued a statement stating that it would allow customers to purchase features upfront for vehicles. It also said that subscriptions for features like remote start functions and dashcams were available to offer “flexibility.”
The heated BMW seat row was, in many ways, a small part of a larger campaign. Nearly every major automaker offers some type of subscription. These include Tesla’s Full Self-Driving for $15,000 upfront or $99-$199 a monthly), General Motors’ crash response system OnStar ($25- $50 an m) and Toyota’s Remote Connect ($8 an m or $80 per year).
Global carmakers are not surprised to be jealous of the incredible returns of tech companies like Microsoft and Apple. Sell software, and get Google results, it seems. General Motors has stated that it expects to generate $25 billion annually from subscriptions by 2030. CEO Mary Barra stated last year that it has found that car buyers will spend, on average, $85 per month.
Gary Silberg, the head of the global automotive sector at KPMG, says that it is a huge market. According to him, automakers are trying to solve a “silly” problem by using software-stuffed cars. Silberg states, “You spend all your money building the car, all your money designing it, all of the money building factories, but you don’t get the chance to talk to customers.” Automakers have more options because of the increased number of connected vehicles and the associated apps. Michael Bensel, vice president of mobility and connected service at Cariad, the Volkswagen Group’s automotive software subsidiary, said that “connected cars have completely transformed the landscape of customer interaction.” According to Bensel, the company’s relationship is changing from “occasional contact with dealers at times of purchase, maintenance or repairs to continuous customer contact throughout the ownership period.”
Automakers are still trying to figure out how to convert used car owners into customers. Most of their services reach used-vehicle buyers when they purchase a vehicle from a dealer that is certified (about one-third in the US) or when the new owner searches for its app. Automakers reach out to owners when there are recalls. This is done through closely controlled contact with local motor vehicle departments.
General Motors spokeswoman Anna Yu declined to give specific numbers about subscribers who drive used cars, but she said that “second owners” are some of the most loyal customers. This is often because they reached out to inquire about subscription-based products such as OnStar or Super Cruise, which provides advanced driver assistance.
Cariad’s Bensel claims that the VW-owned company can push “highly targeted digital ads” directly onto drivers’ control panels and apps. He says that connectivity is now available in both new and older cars. This allows Cariad to pull data to help VW “better comprehend the usage of our cars as well as customer requirements over a lifetime.” This could allow automakers to build better products for drivers of new and used cars. It also helps to tune digital ads.
Automakers often offer free trial periods to drivers of used cars that they have a direct connection to via email or an app. These trials are designed to hook a consumer into a subscription model of car ownership. However, many used car drivers are not so easily targeted. This is especially true for those who do not purchase their cars through the dealer-controlled networks of automakers.
LexisNexis Risk Solutions, a data analytics company, found that 83% of US car owners with built-in connectivity “remain unsold” in a survey conducted in 2021. This means that automakers have left money on their tables.
LexisNexis offers a service called “Owner Check” that helps automakers find used car owners. It has been available since 2021. The service can link “disparate information sets” to determine when a vehicle has a new owner and vice versa, according to Dave Nemtuda (head of automotive products). Although the company will not disclose the names of automakers that use Owner Check, it states that 65 percent of global auto market companies are either using the service or testing it.
These subscriptions offer automakers a new way to compete and position themselves in relation to other brands. Bjorn Annwall, Volvo’s deputy chief executive officer, says that the company believes it is unfair to charge more for the hardware already installed in a vehicle– “as in the heated seats”–but that it’s okay to charge for more complicated software. A parking aid that combines images from multiple cameras is one example. He says, “This is partly market research but also common sense.”
Although it’s a plausible theory, it’s not as tested as the subscription strategies of all automakers. McKinsey senior partner Ondrej Burkacky works in automotive software. He says that some industry projections for revenue and subscriber numbers have been overly optimistic.
He says the unanswered question is: “What are people really willing to pay for?” VW’s Cariad reported an annual loss of $2 billion last year due to delays in its software products. It isn’t the only automaker that has had difficulty building easy-to-use software. These companies’ software and subscriber drive will expand to owners of used vehicles, increasing the possibility for people to lose hope or go mad.
