A monthly fee for heated seats? Car subscriptions are coming — whether Americans like them or not
Americans are more than willing to pay for add-on features for apps and monthly subscriptions like Netflix. But monthly fees — known as "features on demand" (FoD) — are now coming to their cars, which are connected to the internet and cloud in a dizzying number of ways. And in most cases, Americans aren’t too happy about purchasing add-ons, especially when new cars are averaging nearly $50,000 off the lot.
A new study from Cox Automotive this week found that 75% of respondents agreed with the statement that “features on demand will allow automakers to make more money.” And 69% of respondents said that if certain features were available only via subscription for a particular brand, they would likely shop elsewhere.
This is a worrying trend for automakers counting on billions in revenue from subscription services, and they’re finding owners are already balking. But the automakers are pushing on.
“I think the general view is that this isn't going anywhere because most [automakers] have seen this as a significant revenue source and that's not just luxury brands,” said Alistair Weaver, editor in chief of the automotive research firm Edmunds, in an interview with Yahoo Finance. “GM has been very open about it; Ford is working on it. So this is the new frontier of how to generate revenue.”
A monthly fee for heated seats?
Recently, BMW caused a massive stir when it introduced subscription pricing for heated seats in its cars, when the option wasn’t purchased originally. The rub here is the actual heated seat is built into most BMWs.
Though this feature was only turned on in international regions and not the US, many BMW fans and auto enthusiasts were incensed at the prospect. The car comes with the feature built-in — "Why should buyers pay just to turn it on after the fact?" was the most common complaint.
While automakers like Tesla have been utilizing subscriptions or features on demand for options like Autopilot and the more advanced full-self-driving (FSD) beta feature, these are software add-ons that enhance the car but aren’t really physical features that were sitting dormant in the car (though one could argue the chips, processors, and sensors on a Tesla needed for autonomy were already paid for by the owner).
Mercedes waded into the mix recently with news that it would allow owners of EQ-series EVs to unlock more power through a subscription feature activated through the Mercedes app. For instance, for the EQE 350 4MATIC EV, Mercedes notes prices of $60/month, $600/year, or a lifetime cost of $1,950 to unlock an additional 60 horsepower (and improve 0-60 mph times to 5.1 seconds from 6.0 seconds, which truth be told is a significant boost).
It’s another interesting move from Mercedes, as the car theoretically is capable of producing the enhanced power, but Mercedes has essentially “detuned” the motor from a software point of view. Usually this is the case for the base trim or lower-level trims in the model line, like in this case the 350 4MATIC trim of the EQE series.
Toyota was flagged by users on Reddit for making owners pay a subscription fee to unlock certain features on the Toyota app, namely the ability to unlock the car doors and remotely start the vehicle if need be. Again, the feature is already baked-in to the app and the car itself, but Toyota would like owners to pay to activate the feature.
For its part, Toyota defends the practice and says it is actually offering a better deal for owners as the products mature.
“Previously, our Connected Services plans were priced a la carte. For example, Remote Connect was $8 per month and Drive Connect – our Intelligent Voice Assistant and Cloud Navigation feature – was $16 per month for a combined total monthly price of $24,” a Toyota spokesperson said in a statement to Yahoo Finance. “The new plan featuring both services is now priced at a lower $15 per month cost. We have also introduced a trial for our Safety Connect emergency telematics service which is now included for up to 10 years on every vehicle featuring our new multimedia system."
Toyota says many of its models have one-year trials, and many Lexus models feature three-year trials to introduce drivers to the features and benefits of the company’s Connected Services before a subscription plan is necessary.
Why the industry sees FoD as the future
Why are these subscription fees so important to automakers? Because many of them have included subscription fees in their financial models to justify future revenue and profits for the business over the years. Wall Street analysts and investors are counting on these additional dollars beefing up the bottom line in future quarters and thus boosting share price.
The question is, how can automakers make these feature on demand services palatable to more owners? Toyota’s practice of offering these services for a limited time for free, which other automakers do as well, is a way to soften the blow and let customers see if they really need the service.
Case in point: Cox found that 65% of respondents suggested a free trial period for add-on features would be a positive selling point and make them more likely to consider a brand. Even better, nearly half of respondents felt having the ability to upgrade a car with new capabilities would be a reason to retain the car longer in the future.
Whether Americans are willing to play ball here and pay the fees is another story. Many already reluctantly do (this reporter a couple years back paid an additional fee to unlock Apple CarPlay on a used-car purchase), as some must-have features just need to be had.
“I don't think [features on demand] is going away, and also as the cars get more and more sophisticated, get more and more functionality, then it just feels like a natural progression,” Edmund’s Weaver says, also noting he too has gotten used to these add-on features, and their costs, for his personal vehicle.
Perhaps Weaver, and the industry as a whole, is right about the future of features on demand.
On the flip side, maybe the old “analog” car will make a comeback: one that doesn’t need connectivity to the cloud to work properly and a credit card to make the car go faster.
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Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.
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