Nickeled and Dimed? Why Automakers Are Moving to Vehicle Subscriptions

These days, most Americans have one or more subscriptions for everything from online shopping and streaming entertainment to home delivery of meals and personal care products. On average, U.S. consumers pay $48 per month on video-streaming subscriptions alone, according to Deloitte’s 2024 Digital Media Trends report, with about half saying they “pay too much” for these services. Multiple monthly subscription services have become so pervasive, pricey, and overwhelming for consumers that there’s a term for it: subscription fatigue. 

Subscriptions Come to Cars 

As if that wasn’t already enough, now automakers are also increasingly getting into the subscription game and asking vehicle owners to pay monthly or annual fees for connected services, convenience and safety features, and performance enhancements—several of which were previously standard equipment or options paid for at the time of a vehicle purchase. Examples include: 

• BMW: A Drive Recorder feature costs $149 for the lifetime of the vehicle or $39 per year. Traffic-camera information is available for $25 annually. 

• Ford: Buyers can use the BlueCruise highway hands-free driving system free for 90 days, then keep it activated for $495 a year or $49.99 a month. They can also pay a one-time fee of $2,495 for the service at the time of vehicle order (or they can pay $495 at the time of order for a year) starting with 2025 model year vehicles. 

• General Motors: Super Cruise costs $2,200 up front for three years on Chevrolet and GMC vehicles and $2,500 for Cadillacs, after which it’s $25 a month or $250 per year via subscription.  

• Mercedes-Benz: The Mercedes Me Connect includes live weather and traffic and connected navigation for a $150 annual subscription, while Digital Extras such as an Acceleration Increase cost $1,200 a year. 

• Tesla: For a one-time payment of $12,000, or $200 per month, new owners get access to its Full Self-Driving system. 

• Toyota: It costs $80 a year or $8 a month for remote start. 

Enabled by Connectivity and Software 

These subscriptions are increasingly becoming available thanks to the ever-growing connectivity enabled by the latest software defined vehicle (SDV) architectures underpinning new vehicles. This allows for sending over-the-air updates that, much like with smartphones, empower vehicle owners to download new apps and features. And automakers are increasingly poised to generate ever more revenue from these services as they expand.  

“As vehicles become more software-centric, automakers see opportunities to monetize features that can be activated or enhanced via software updates,” said Fanni Li, associate manager connected car and vehicle experience, at S&P Global. “Subscription services provide a steady revenue stream as opposed to traditional one-time vehicle sales.” 

In 2021, GM CEO Mary Barra announced the company’s goal of generating $20 to $25 billion annually through subscription services by 2030. Ford CEO Jim Farley said last year that the automaker has made “hundreds of millions” on software with gross margins over 50 percent and the company expects to earn “10x that in the coming years, just based on the growth we see.” 

Guided By OnStar  

Subscription services from automakers are not new. GM launched OnStar almost three decades ago and the service has largely been a success. OnStar-style “telematic” services were quickly copied by other automakers offering similar automatic crash notification, emergency roadside assistance, and other services enabled by a cellular modem in the vehicle. With the advent of ubiquitous 5G in-car connectivity and smartphones, these services have expanded to include remote door locking and unlocking, locating a vehicle, checking an EV’s charge status, and other features, all while using an automaker’s app.  

“There are a few things that GM did really well with OnStar,” said Andrew Hart, CEO of SBD Automotive. “One was setting up a separate organization driven by selling services. Then they forced every brand and every car line to include it.” Perhaps more important, said Hart, salespeople were incentivized to sign customers up for OnStar subscriptions. “They did things like collecting credit card information so once the free trial period ended the subscription rolled over,” he said. 

But according to Hart, the latest subscription services haven’t been handled as well. “In many cases half of cars leave the dealership without the connection for the free service being activated,” Hart said. “They’re still more concerned about selling cars, not subscriptions.” 

Car Companies Want to Be Tech Companies 

Despite a decade or so of declarations to operate more like tech companies, many automakers are continuing to struggle with the transition from simply moving metal to selling software and subscriptions. And all that presupposes the vehicle’s underlying operational software is right to begin with, which has presented its own challenges, as GM’s recent issues with its all-electric, software-heavy vehicles have shown.  

It also remains to be seen whether car companies have the technical, organizational, and marketing capability to emulate tech companies that have pioneered and perfected the subscription model. This is why in the age of SDVs, some automakers are turning to tech giants such as Amazon, Google, and Microsoft. “Partnerships with companies like Google with its Android Automotive OS allow OEMs to offer familiar and user-friendly interfaces while focusing on vehicle-specific integrations,” said Li.  

As part of this, several automakers have ditched Apple CarPlay in favor of a Google built-in approach that allows car companies to develop their own apps in addition to offering familiar Google products such as Assistant, Maps, and Play Store. “The goal is to take control of the overall experience, and it helps automakers become much more aligned to the digital experiences that all of us are looking for in our day-to-day lives,” said Kevin Mixer, senior director analyst at the consulting firm Gartner. 

But this build-it-and-they-will-come mentality in which automakers first developed the capability to update vehicle software over the air to enable offering new services and features doesn’t guarantee success, according to Hart. “Using the latest technology, they can now connect the dots into what they should do in terms of features and pricing from a consumer’s point of view,” he said. “But I think consumers are much more practical than OEMs realize and first ask, ‘How does this help me?’ I think most OEMs are still technology-driven as opposed to outcome-driven, and the way they’re developing and introducing subscriptions doesn’t always connect with consumers.” 

Outrage Doesn’t Match Reality 

Automakers charging subscriptions have initially faced harsh criticism online. BMW, for example, stopped charging a subscription for heated seats after getting roasted by consumers, and it dropped charging $80 a year for access to Apple CarPlay and Android Auto even though the feature is just software.  

But despite the well-publicized pushback against BWM’s subscriptions, S&P Global said that based on its data, the “perceived outrage doesn’t match reality” for the general consumer. It found that customers are open to subscription features and services if it allows them to tailor their vehicle to their needs and preferences and opt in or opt out of certain features. “While some consumers are resistant to paying ongoing fees for features previously included in the vehicle’s purchase price, others appreciate the flexibility and personalization that subscriptions offer,” Li said.  

Frequency of use and the cost of a feature as part of a new purchase are important factors, she added. For example, if car owners seldom use heated seats because they live in a warm climate, they probably don’t want to pay a subscription for it. “Some features are relatively affordable, reducing the need to spread out payments over a subscription,” Li said. In fact, S&P Global found that fewer than 30 percent of respondents are willing to pay for heated seats or a heated steering wheel though a monthly subscription.  

Safety features such as automatic high-beams and dashcams earned the highest satisfaction rate (89 percent) of all connected services, with driver assist and connected navigation services being the most popular subscription features, Li said. This is likely because when added at the time of the sale, driver assist features such as automated hands-free highway driving have large upfront costs and can significantly add to the total sticker price, but a subscription stretches the cost over time, she added. “Maybe I need it for a weekend, or I need it for a trip, but I don’t use it every day,” Mixer said. “So not paying for that feature in the purchase price has appeal.” 

An S&P Global worldwide survey of nearly 8,000 consumers discovered that 45 percent of respondents that had services activated at the dealership as part of a free trial period improved the odds of continuing as subscribers. “We’ve found that if consumers get a taste of some of these connected services, they’re more likely to pay for them,” said Yanina Mills, senior technical research analyst at S&P Global Mobility. The S&G Global survey also showed 72 percent of consumers would purchase a subscription at the end of their trial period and 86 percent would renew their paid subscription when it ends. 

Driven by Data 

Even if connected car owners don’t renew their subscriptions, car companies can still reap rewards in the form of data and user feedback that can aid in future product development and personalized marketing, thereby enhancing the overall digital experience for drivers. “The goal for automakers is having insight on which features are being used and what it is that the customers are really experiencing,” Mixer said. “It allows services to be tailored around how someone uses the products and to make sure it’s used more efficiently.” 

Like tech companies, this helps automakers better market to consumers by understanding their preferences. “That insight helps with the targeted or personalized marketing that you might get inside the vehicle,” Mixer said. “The accuracy of what those services are and what gets offered requires the foundational insight on how the vehicle is used and how the customer finds value in the use of that particular product, but it’s not something you generally you can directly quantify.” 

Of course, increased connectivity in cars also raises concerns about data security and privacy. “OEMs must ensure compliance with all relevant regulations and be transparent about data collection practices,” Li said. “Protecting consumer and vehicle data is paramount to maintaining trust.” 

But some automakers haven’t been doing a great job of this. In March, The New York Times published an exposé on how automakers work with data brokers that in turn sell driver data to insurance companies. And last year a Mozilla Foundation’s report “It’s Official: Cars Are the Worst Product Category We Have Ever Reviewed” called out automakers as aggressive collectors of personal data compared to other technologies the nonprofit has examined. “Every one of the 25 car brands across 15 car companies earned our Privacy Not Included warning label, which is a first,” said Jen Caltrider, Mozilla’s lead researcher for project. 

So, while automakers continue to figure out the best ways to market and efficiently deliver subscription services to their owners, often by emulating the tech industry, privacy and data security are other areas where they can learn—good and bad—from those same companies.