Are Automakers Going to be the Next Subscription Kingpins?

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Subscriptions are becoming a part of our daily life, changing the usual approach to consuming goods and services. This is rapidly spreading into the automotive industry, where many automakers are emulating the subscription-based model of tech giants like Amazon/Netflix and locking new features & capabilities behind paywalls. Aftermarket subscription models have gained popularity in recent years, offering car owners access to various connected services for a monthly or annual fee. This helps secure a recurrent stream of aftermarket revenues for the automakers and enables a long-term association with their customers. With the advent of the software-driven vehicle and increased penetration of connectivity, the mobility industry is heading down a path to revolutionize its customer relationships through value-based aftermarket services. And the advent of 3rd party application marketplaces that are on their way to the vehicles of the future will only serve to accelerate this trend.  


Current Automotive Aftermarket Subscription Landscape  

Many vehicle manufacturers are already offering subscription-based features in their vehicles.   

Several automakers, including General Motors, BMW, and Audi, offer value-added services such as remote start, diagnostics, and vehicle tracking. These services are typically subscription-based and can be purchased as part of a package or a la carte.  

GM has earned over $2 billion in in-car subscription service revenue, which the company expects to grow to $25 billion by the decade’s end. That would put GM in the same league as the tech giants.  

At the same time, there have been instances where automakers rolled back on their plans for subscription models. For example, in 2019, BMW abandoned a plan to charge $80 per year for Apple CarPlay after widespread pushback. In addition, Toyota said it would review a subscription plan that unintentionally paywalled use of the key fob for remote start.  

From a customer standpoint, customers are willing to pay for features related to ADAS, vehicle performance upgrades, personalization, convenience (remote service packages) and enhanced entertainment. At the same time, this varies depending on the customer’s personas. For instance, Gen Z or younger generations prefer unlocking enhanced experience and personalization. On the other hand, the demographic cohort preceding Gen Z may pay for features that are more inclined toward performance.  


Key Drivers of Subscription Model for Value-Added Services  

Various factors are contributing to the rise in the aftermarket subscription models.  

Flexibility to Customers: Subscription-based features offer an attractive proposition to vehicle owners as they allow them to activate and deactivate features of their choice at any time and unlock new capabilities with value.  

Evolving Preferences of Customer: Customers, especially Gen Z and early adopters, love the idea of showing off cool new features of their vehicles to passengers and passersby.  

Low entry cost versus one-time purchase: Most customers feel a subscription-based model is more feasible than a one-time payment. This is especially true for services that may only be needed occasionally or for a limited time. Affordability and convenience for customers through subscription-based models are the key selling points. 


The Art of Possible in Automotive Subscription Models  

The aftermarket subscription provides many opportunities for OEMs to drive value-added services for customers. Some of these include:  

ADAS Features on Demand:  Parking Assistance, Lane Departure Warning Systems, Forward Collision Warning and Adaptive Cruise Control   

Vehicle Performance Upgrades: Engine performance tuning, suspension upgrades, and exhaust system enhancements.  

Enhanced Entertainment: Satellite radio, navigation add-ons, smartphone integration, gaming system access (while parked) and video entertainment options.  

Vehicle Convenience: Remote lock and unlock, diagnostics and prognostics features, and remote service packages.


Challenges and Hurdles in the Subscription Model  

Despite the traction for subscription-driven services, there continues to be challenges in adopting the aftermarket subscription model. These include:   

Customers’ mindset: While consumers today are accustomed to subscribing to various services in their everyday lives, the mental model for subscribing to vehicle capabilities has yet to be pervasive.  

The reality features such as navigation, heating and cooling options (heated seats) are not added after the customer pays, but they’re merely unlocked. So, it runs the risk of making vehicle owners feel like they are charged twice- one for the feature to be built into the vehicle and the other to activate it again. For most, subscribing to unlock already-featured utilities that were once standard could be better.  

Complexity: Some subscription models can be complex, with multiple tiers of service and fees. This complexity can make it challenging for car owners to understand what is covered and how much they pay for their subscriptions.  

Limited Understanding of the Features: In many instances, the customer may need a more understanding of the value of the feature itself, requiring automakers to provide an option for the customers to try out certain features on a trial basis. Besides, a free trial guarantees a baseline customer satisfaction level right from the start. But getting vehicle users from trial to subscription can be a challenge, especially if they go to a different platform than the vehicle to approve payment (this is highlighted as a key enabler below).  

Negative Perception by Customers: Up charging vehicle owners for unlocking safety and security features could bring about adverse ripple effects on the brand.  

“What features of a car should never go behind the paywall? “is a question that needs thorough deliberation factoring in the safety, comfort and convenience aspects of customers in today’s digital mobility era.   


Foundational Technology Enablers for Aftermarket Subscription Models  

Technology is pivotal in enabling targeted customer experiences and optimized subscription models based on the customer pulse, leading to a win-win situation for both business and customers.  

The key enabling technology that must be in place to accelerate aftermarket revenue streams include:  

  • Reliable and secure Over the Air updates capability  
  • Merchandising capability in-vehicle powered by a cloud-based system with advanced analytical capabilities   
  • Vehicle-as-wallet payment ecosystem that allows the customer to “sign up” right from the vehicle center stack  
  • Next-gen subscription management system to enable new features and service bundles catering to the needs of different customer personas   
  • 3rd party app APIs and application certification programs  
  • Secure marketplace enabling seamless value exchange between the customers and 3rd party providers   

It’s a lot of software to put in place, especially if you are a company that has grown up as a manufacturer.  That is where partnerships and system integrators will come in to help OEMs speed these capabilities to market.


The Future of Automotive Aftermarket Subscription Models   

In recent years, some have begun to question the value of car ownership. Owning a vehicle comes with responsibilities and long-term commitments many people are no longer willing to accept. In a dynamic world where people are constantly on the move, consumers view vehicle ownership as a burden and increasingly prefer shared ownership models.  

Aftermarket subscriptions for flashy new lighting packages and the ability to customize your vehicle in ways we could never have imagined just a few years ago hold the potential to reignite some of the allure of a vehicle, whether it is directly owned by the customer or shared. The Subscription Model is expected to accelerate significantly with the advent of shared mobility. Customers can use vehicles based on their needs, moods, seasons and desires without the burden of ownership but with the ability to customize them to their tastes. This shift has significant implications for businesses across the automotive ecosystem, from manufacturers to dealerships to suppliers. The mobility industry is being transformed before our very eyes, with automobile manufacturers and others vying to be the next subscription kingpin. 

Posted by Bob Duffy

1 comment

Kyle Parsons

Nice job Bob! I was hoping the thoughts would finish exactly as they did. Really fun to read your clear eyed view of automotive innovation.

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