Subscription services in Automotive

Last week, BMW announced a subscription service for heated car seatings (eg, Ars Technica, BBC, the Verge, WSJ). This development would allow for: (i) lower production cost (ie, standardization), (ii) an artificially lower manufacturer’s suggested retail price (MSRP), and (iii) increase of post-sale “rental” revenue.

This innovative idea sounds too good to be true. Where is the risk?

Actually, I had already read about such subscription services for the 2021 Toyota Corolla Cross (ie, navigation or road map updates). That idea had caused an uproar in USA and Toyota subsequently reconsidered it (eg, Motor1). It might well explain why BMW is not considering its idea in USA.

To paraphrase the above: manufacturers would reduce complexity in car production (ie, standardization) by making one hardware type and using software to activate various options (eg, colour, engine performance, suspension). It’s like a modern version of Henry Ford’s “any color so long as it is black”.

Various articles have already stated that new cars are getting too expensive (eg, Motor1-2022, J.D. Power-2020). This development is caused by (i) the high price of electric vehicles (EV), (ii) VW’s diesel scandal, and (iii) increasing political pressure to say farewell to the Internal Combustion Engine.

Hence, the BMW initiative fits well in the car manufacturers’ worry that new cars are getting too expensive for many buyers. Motor1: “This has caused many consumers to put their purchasing decision on hold, while others a forced to settle for a lesser model than their original plan permitted.”

Once governments adopt road pricing, car subscription services would be very welcome. Why own a car 24/7 if you need it for a couple of hours per day, week or month? In my view, car subscription services will finally allow consumers to consider an own or rent decision. That decision will hurt car manufacturers.

Owning and financing a car fleet, while renting cars to consumers, is one of the worst business models ever (ie, 100% fixed cost vs 100% variable revenue). I know. The solution lies in optimising fleet utilisation.

Perhaps, it makes logical sense that we finally abandon car ownership and focus on car usage. We would then also abandon emotion and adopt ratio. In my view, few car manufacturers would survive (eg, Toyota). The many brands that now focus on emotion, will have a hard time convincing customers.

Black Cars (1984) by Gino Vannelli
artist, lyrics, video, Wiki-artist, Wiki-album/song

I say
Black cars look better in the shade
Black cars

Note: all markings (bold, italic, underlining) by LO unless in quotes or stated otherwise.