May 2, 2022 - Technology

Car buyers balk at monthly fees for add-on features

Illustration of a car blinker light shaped like a dollar bill sign.

Illustration: Aïda Amer/Axios

GM expects car buyers to pay an average of $135 a month in coming years for bonus features like navigation, hands-free driving technology and other digital services that customize the in-car experience.

  • That's on top of their monthly car payment.
  • Yes, but: Whether people will actually cough up those monthly subscription fees, on top of the vehicle's purchase price, isn't clear.

Why it matters: Auto giants, borrowing a page from tech services sustained by predictable, recurring revenue streams, envision billions of dollars in new income by turning the car into a content platform and charging vehicle owners for subscriptions to premium features and services.

The problem is, they're competing for consumers' subscription budgets with Netflix, Hulu, Spotify and a growing smorgasbord of other monthly services.

New cars are already too expensive for many people, selling for an average of $45,927, or 43 weekly paychecks, in March, according to Cox Automotive's Kelley Blue Book.

  • Meanwhile, consumers are getting squeezed by higher prices for everything, including gas, food and housing.

Driving the news: People don't want to be nickeled and dimed for stuff they think should be included in the price of the car, according to a new survey by Cox Automotive.

  • 75% of consumers said they were not willing to pay an annual or monthly subscription fee for most items on their next vehicle.
  • Safety and comfort features, in particular — things like heated and cooling seats, remote start, lane-keeping assist and automatic emerging braking — should be part of the purchase price, they said overwhelmingly.

The results are in line with earlier research from Gartner that showed people would rather pay up front and not deal with a nagging subscription, Gartner mobility analyst Michael Ramsey tells Axios.

  • Besides, what's expected as a standard feature in cars is going to constantly evolve as technology improves, he said.
  • "Car companies angling to shake down consumers at every turn on a car that already cost them $40,000 are going to find a frosty reception unless the services they are providing are truly not expected."

The survey results can't be good news for automakers like GM, which sees $20 billion to $25 billion a year in new revenue by tapping into software and subscription services that enable new vehicle experiences and connect customers' digital lives.

  • "Our business model is shifting. And software and services are our white space," Alan Wexler, GM's senior vice president of innovation and growth, said at a recent investor event. Wexler joined GM in 2020 to lead its digital transformation.

Some automakers have already encountered pushback after trying to implement subscription fees for certain features.

  • BMW took heat, for example, for trying to make heated seats available only by subscription.

The big picture: The entire auto industry is headed toward subscription features amid the shift to software-controlled electric and automated vehicles that can be regularly updated like a smartphone.

  • In many cases, premium features are included for an initial trial period, but then car owners have to pay a monthly fee to keep them.
  • Buyers of the 2022 Toyota Tundra, for example, will need to pay $32 a month to keep most of its connected services and cloud-based navigation after a one-year trial.
  • And Cadillac Escalade buyers who want its Super Cruise hands-free driving system pay $2,500 upfront, then an additional $25 per month after a three-year trial period ends.

The bottom line: As the subscription economy spreads everywhere, maxing out consumers' monthly bills, every big industry will end up fighting for a slice of a limited pie.

Disclosure: Cox Automotive is owned by Cox Enterprises, an investor in Axios.

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