Subscriptions in cars, a long, messy story
You might have heard of BMV trying to sell a €17 heating seat monthly subscription. Heating-seats-as-a-Service anyone?
Yes, this sounds ludicrous.
On the surface, this seems to be a story of incumbent automakers trying to be more like Tesla or software companies and being quite heavy-handed about it. Of course, there's some truth to this. The business of selling recurring revenues has been the new black since Netflix showed the way.
It's not even a figure of style. It's literally GM's grand master plan.
You need to remember, though, that automakers' century-old untold business model has always been selling high-margin services on top of razor-thin car sales margins. I'm talking about financing and maintenance, which account for 30-40% of the total cost of ownership of a car for the many years you're going to own it. And if you buy insurance from your dealership, it's the real Jackpot.
Subscriptions in disguise have always been there; there were just not called that. What's happening now is just ongoing adjustments and tweaks of this old business model.
Are automakers greedy, though? Of course, they are. But then again, what's new? How many optional features are you pushed to pay on a brand new car, from painted car handles to defrosting rear window? For them to squeeze as much cent from the software layer of the car is just business as usual. The heating seat subscription is probably a dumb overzeal episode from the marketing department that will be removed in a few months, if not weeks.
All that being said, there are a few takeaways looking forward:
- Under Tesla's lead, automakers will be pushing more and more openly subscriptions. It's just an industry culturally slow to turn around. Still, they will eventually reinvent the TelCo subsidization model for buying high-end smartphones, or most probably what Apple is doing right now with their annual upgrade program.
- The real motivation here is the rise of electric vehicles in their market shares and the concomitant disappearance of most of the recurring maintenance. No more leaky engines, used sparks, fissured joints, or oil changes for them. How to compensate for this and, if possible, upsell from there?
- Lastly, there's a second-order of consequences: when most of the maintenance needs disappear, you start to question the need for a costly (and vastly opaque) concessions network for your brand. And while incumbent automakers fought tooth and nail against Tesla's direct-to-market business model, prepare for BMW and everyone else to join this bandwagon as soon as they can afford litigations with their franchised dealerships.
