Unpacking the Rise of Car Feature Subscriptions: Insights from Andrew J. Hawkins, Transportation Editor of The Verge

In this interview, Andrew J Hawkins, automotive expert and Transportation Editor of The Verge, explores the current landscape of car subscription models and their implications for the automotive industry and consumers. Hawkins provides a balanced perspective on the challenges to both automakers and drivers and shares his take on topics ranging from subscription fatigue and price gouging to jailbreaking and safety risks.

Alex Levin: How have initial car features subscription model tests fared? Are they increasing bottom lines for automakers overall, and how are they trending?

Andrew J. Hawkins: It’s probably too early to tell whether they’re increasing the bottom line. When looking at earnings reports and how companies report these numbers, it’s difficult to assess the impact they’re having.

Their bottom line may be a pretty minuscule percentage overall of the revenue that car makers bring in. However, as subscription services expand and evolve over time, they anticipate the potential to make millions, if not billions of dollars. While it’s too early to tell if this will pan out, I would guess that most companies don’t break these numbers out individually, so it’s hard to determine how much money they’re making from it considering we’re still in the early days of rolling out these business models.

AL: Do automakers expect the public to warm up to the idea of paying for these services and that the subscription model will be successful in the long term?

AH: Companies certainly expect customers to warm up to it, but whether they will remains to be seen. There is probably a lot of subscription fatigue among car buyers, as subscriptions have become a predominant way of interacting with media, food, and clothing – there has been a really dramatic shift toward subscription services over the last decade.

The idea of subscribing to things in their car might not excite customers, especially since cars used to come with fixed prices and optional features that were permanent. Now, the auto industry wants to flip that and make factory-equipped options subject to annual subscriptions, which customers might not be very excited about.

AL: Do you think there are any features that customers are open to paying more for than others?

AH: Yeah, I do think there are software features that customers might be interested in, seen as luxury items. For example, Tesla has discussed the idea of customers subscribing to their full self-driving driver assist feature. Initially, it started at $7,000 and increased to $10,000, and now it’s around $15,000 or $12,000. That’s a significant amount to pay for a driver assist feature. When potential buyers see that number, they might hesitate to spend so much on it, even though it’s marketed as beneficial. They might be more open to an annual or monthly subscription, especially if they’re unsure about how it will affect their driving experience. They might love it if it makes their commute easier, but if they mostly drive on local roads and dislike the system’s behavior, they would want the option to opt out. Paying $15,000 for a feature and then never using it wouldn’t feel good.

On the other hand, with a subscription, there is more flexibility in using the feature. So, certain features like that could be more suitable for subscriptions. However, there are other features that customers would be unwilling to pay a subscription for, especially those they previously received for free. BMW faced backlash when they tried to charge a subscription fee for Apple CarPlay and Android Auto, which people expect to use for free in their cars. BMW had to reverse their decision due to the negative response. We are currently in an experimental phase for feature subscriptions in cars, and automakers will push the boundaries to see what customers are willing to accept.

AL: What are the top brands currently testing subscription car features? Are any other companies planning on entering this field?

AH: The companies that are doing this are mostly luxury brands like Audi, BMW, Cadillac, Porsche, and Tesla. Starting with luxury brands is a smart move, as their customer base tends to have more money and may be more willing to spend on features. Once the trend trickles down to more mass-market brands like Chevy, Ford, Hyundai, and Kia, customers might be more skeptical and reluctant to subscribe to features, considering the car purchase is one of the most expensive investments after their homes. The industry seems to be moving towards defining vehicles by software and updating them, so it’s likely that more automakers will adopt subscription services.

AL: You mentioned that car prices have been increasing. Aside from pandemic-related factors like low inventory and high demand, do you think there are other causes for this increase?

AH: Yes, there are a couple of factors contributing to the price increase. As you cited, the aftermath of the pandemic was a contributing factor, and there was a chip shortage that had a huge impact on the auto industry and restricted their ability to roll out the many types of software they had been prior to the pandemic.  Another reason is the inventory is about as low as it’s been. The cars are getting made and pretty much going directly to customers. Right away that increases demand and prices.

The industry has trended towards bigger vehicles, big SUVs, big trucks, software, and feature-rich vehicles, which also tend to be very expensive. We’re also seeing that vehicles on the low end of the scale are getting discontinued or pushed out of the market. For example, General Motors just recently announced that it was scrapping production of its top-selling model, the Chevy Bolt, in anticipation of coming out with some slightly bigger models later this year. Those smaller, more affordable, more attainable vehicles are not available anymore, and that also tends to drive up prices as well. There’s a sort of confluence of all these trends conspiring to really hit people in their pocketbooks.

Ford Focus RS 2017 PH 1

AL: Are there any features currently sold as subscriptions that should be standard, especially safety features like collision warning?

AH: I think things like blind spot detection, pedestrian alerts, automatic emergency braking should all be standard, and customers should not have to pay for those. You’re seeing companies experiencing blowback for their attempts to package those together as part of driver-assist features rather than breaking them apart and trying to sell them as options and subscriptions.

There’s some movement on the regulatory front. For example, the government now requires automatic emergency braking to come standard on vehicles. But there are still other safety features that are equally important as automatic emergency braking that should also come standard. And I think the gears of government work slowly, so it remains to be seen whether there will be a similar movement to require those to not have a price attached to them. There need to be clear rules around this, especially.

With concerns such as energy efficiency, the idea that you can pay a fee for a subscription to unlock more range or more efficiency in your vehicle seems like a stretch as well. This may be viewed unfavorably as an additional cost for something that should be accessible at the time of purchase. Companies may end up pushing to the limit of what people are willing to pay for, and hopefully, regulators are attentive to this issue as well.

AL: How big of a role should regulators play? Are consumer rights being violated? Are any organizations such as the National Highway Traffic Safety Administration already involved?

AH: I haven’t seen much movement from them or any of the other agencies on the front of subscriptions. I think the FTC would probably play a big role if they’re interested. They’re pretty stretched these days. Consumer advocacy groups are beating the drum about car subscriptions, but regulators are mostly focused on safety issues like reducing pedestrian deaths and ensuring safe operation and design of cars. There’s a lot on their plate already, but if companies start charging fees for safety systems like AEB and pedestrian detection, it should raise the red flag for regulators and prompt action.

AL: A little background for the next question: In Illinois, an investigation into kidnapping was delayed recently when Volkswagen refused to enable a car’s GPS tracking for the Sheriff’s Office without payment. Are there liability concerns for car companies if someone’s injury or death could have been prevented with mandatory safety features? Are there any similar cases?

AH: The Volkswagen case was definitely a pretty dramatic example of how this can go really wrong for the car companies. And hopefully, Volkswagen, but also all of their competitors, stood up and took notice. You’re seeing a lot of fallout right now from the rise in software in vehicles and vulnerabilities that exist. We’ve seen examples of cybersecurity breaches and hacking, the ability for a car to be easily broken into or stolen by exploiting software problems. So, if companies take a hard line when it comes to their willingness to cooperate with investigations, especially this one involving a two-year-old child still in the car, that’s a horrifying thing to happen.

You’d want to see responsibility from the companies, especially if these cars are being built to be as connected as they are, to cloud services and servers. There’s an opportunity here to increase safety and use these features to fight crime, auto theft, etc. I don’t think we’ve really seen that. There’s a lot of marketing around companies arguing that their connected software services benefit customers looking to prevent car thefts and other potentially illegal things happening with their vehicles. But then these types of examples show up, showing that it’s still a locked ecosystem, revenue-driven approach that can cast the whole industry in a bad light, which they really don’t need right now.

AL: What are some notable downsides of subscription services for automotive features?

AH: We’ve covered many of them, but the biggest downside is subscription fatigue. People are already paying a lot for phones, streaming services, meal services, and more. The car industry, coming in late to the game and just now waking up to the potential for a cash grab, I think is really going to rankle a lot of customers who are just tired and looking at their budgets and wondering how much more they can afford to pay to all these services, especially when you used to have a relationship with their car company at the point of sale and that’s pretty much it, and then the car is yours. The idea that you’re not only paying a loan payment but subscription payments, in addition, is going to rub people the wrong way. The auto industry has to approach this very delicately, because there are probably some situations in which people would be willing to pay more, e.g., luxury features, but if they go too far and reach too deep into people’s pockets, it could backfire on them.

AL: Are there any pro-consumer benefits?

AH: One potential benefit is the opportunity for people to test out features they’re unsure about before committing to a long-term purchase. This can provide some consumer benefits.

AL: Is there an aftermarket? What would it look like? Is there any jailbreaking, and what are the implications of the recent John Deere’s right-to-repair ruling?

AH: The auto industry has been pretty adamant that they already have a robust right-to-repair aftermarket in place, and there’s no need for additional legislation to force any mandates on them – that’s their line. And I think there’s a strong argument to be made for that. People modify and upgrade their vehicles and have been doing so for decades. However, when it comes to software, companies may be more controlling about how it interacts with the aftermarket.

There are always going to be tech-savvy people who can break into a car’s computer, but the companies are going to be very adamant about making sure that people don’t do that in ways that can compromise a vehicle’s critical safety system. The comparison is often made that cars are more like rolling computers these days, and that may be the case, but they are still very much cars and have safety critical systems and need to operate in a way that people can find to be reliable.

I think there will be jailbreaking and an aftermarket push for open software. Some companies, like GM, suggest they want to have a very open-source software ecosystem for app developers to work on new features for their vehicles. But they also want to make sure that’s done in a way that doesn’t compromise the safety and operation of vehicles.

AL: Will subscription models for actual cars, not car features, ever take off, and are we already moving away from car ownership?

AH: I’m extremely bearish on car subscriptions and the willingness of people to pay for a subscription to a whole car. We’ve seen a couple of automakers test that out, and some have shut down their services. BMW most prominently shut down its subscription for a car where people could switch out the type of car that they had. There were just too many hurdles for people in that, and leasing already exists, so I don’t really see the value proposition between what exists in the car rental industry and the leasing options that people can access.

I think subscriptions are just a fancy way to rebrand car leasing and say it’s on a shorter time horizon, giving people more flexibility to take out different cars. They’re still trying to make it work, and maybe it’s having some success in some markets, and maybe for the luxury brands there’s some opportunity. But for the most part, I don’t think it’s going to be a game changer in terms of the ownership calculation.

AL: Are there any other concerns about the subscription model for features our readers should be aware of and any other potential advice you may have for drivers?

AH: I would say for people who are drivers or car shopping, just be extremely savvy as you approach the whole process because there are now more ways than ever for the car industry and dealers to reach into their pockets and take more money out. And I think at a time when, as I illustrated already, car prices are as high as they are, that could see a real kind of blowback, customers deciding not to buy new cars because the expense of it all just doesn’t make sense to them, and so they’re going to stay in their old cars.

And old cars have a higher tendency to be more polluting. If it prevents people from switching to cleaner vehicles, to zero tailpipe electric vehicles, that could be a big problem for our climate issues that we’re experiencing. The car industry has invested a great deal in the shift to electrification. You don’t want to see them undermine that by getting too greedy and trying to take too much money out of people’s pockets, and I’m afraid that’s exactly what they’re trying to do.

Based in Pennsylvania, Alex Levin is an automotive writer who has worked with companies such as Kia and CarMax.

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