Have you tried to buy a new car or truck lately? I’ve been buying and leasing them for a long time, and there’s never been a period like the one we’re enduring now. It is still a rather lengthy, laborious process to even order and take delivery on a new vehicle. And hopefully, it’s equipped with all of its advertised features.
Earlier this month, General Motors announced it’s sitting on 95,000 new vehicles that can’t be finished because they are waiting for parts. Of course, the culprits are those little semiconductor chips. GM is hoping they’ll be able to complete these partial cars and trucks by the end of the year.
But long-term, Business Insider quotes auto industry execs who don’t think these supply issues will normalize until 2024. In Q2, GM sales dropped 15% from the same period last year – not a great trajectory.
Even Tesla is suffering from the same malady. A story from late May in electrek reported system-wide delivery delays due to a missing part: the electronic control unit (ECU) for vehicle charging ports – rather an important piece of an EV.
So here we are in an environment where there is a shortage of vehicles and no deals to be had. My car’s lease is up in November, and my salesman told me he might be able to get me a new car, but that I would pay handsomely – well more than my monthly payments now. His advice? Beg them to let me extend my lease a few months and wait it out.
For prospective buyers (or lessors) of new and used cars and trucks, the environment is suboptimal, and is likely to be for some time to come. Wolf Street reports that due to a lack of supply, dealerships are making astonishing profits on the few vehicles they’re able to sell.
But what about the car manufacturers – the OEMs? Next week, many of the biggest automakers will be reporting earnings, and many analysts are bearish about how they’ll perform.
And to some degree, that sums up how OEMs are often unable to maximize profits from their vehicles. In “normal” times, you’re not buying that Mustang from Ford or that Civic from Honda. You’re buying or leasing them from the dealership.
Once a vehicle rolls off the assembly line, manufacturers lose the ability to profit from it. While a dealership may not make a killing from a new car sale, if they’re smart, they’ll make it back – and then some – in service and repairs.
In fact, the National Automobile Dealer Association reports that 44% of the average dealership profits flow from the service bays. Used car sales are a big deal, too.
And that brings us back to the manufacturer where there has historically been little-to-no recurring revenue. But that is showing signs of change.
Take the infotainment system, for example. OK, for historical purposes, let’s call it the dashboard radio. For the last century or so, OEMs dutifully built radios in hundreds of millions of cars, first AM, and then both AM and FM.
Who made the “recurring revenue” from those standard equipped radios? Radio stations and the companies that own them. For decades and decades, broadcasters have reaped untold profits form the hardware carmakers installed – at no charge – in virtually every vehicle to roll off the assembly line.
The tables began to turn when satellite radio came into being. I wasn’t able to find any more recent stats, but back in 2016, the New York Times reported SXM paid roughly $1 billion to OEMs for the privilege of having presence in millions of dashboards.
Interestingly, Apple and Google apparently pay nothing for CarPlay and Android Auto having prominence – and in many cases, dominance – in new car and truck dashboards. How the OEMs let that happen ought to be the topic for a book or PhD dissertation or two.
So, monetizing cars above and beyond their purchase price represents a shift in OEM thinking. There’s the dashboard, of course, but there is also data – that is, what drivers and passengers are doing while on the road. GM, in particular, has made concerted efforts to cash in on its metrics over the past few years, but with checkered results.
For inspiration, the OEMs may be looking to the airlines. The red letter date was May 2018. That’ s when American Airlines had the brilliant idea to start charging fees for checked baggage, a trend that has spread to most other companies that fly us from city to city.
Two years later, Spirit instituted fees for carry-on bags. Over the years, other charges have come and gone, including extra charges for pillows and blankets.
Will the automakers follow suit? Is it even possible for them to institute monthly fees after a customer has paid to buy or lease one of their vehicles?
BMW appears to be the OEM most interested in instituting egregious charges to their loyal customers. In the chutzpah department, they are unparalleled. Back in 2019, they levied an $80 charge for an Apple CarPlay
“subscription.”
And in 2020, they attempted to force their customers to pay additional fees on automatic high beams and adaptive cruise control. (Of course, Tesla has adeptly played this game with software updates and features like AutoPilot.)
These charges are called “microtransactions,” and BMW appears to be on the cutting edge of this trend. According to The Verge, BMW is now charging monthly subscriptions – are you sitting down? – on heated seats.
This gouging hasn’t hit U.S. car dealerships – yet – but is already in effect in South Korea and other countries including the UK, Germany, New Zealand, and South Africa.
In case you’re interested, the fee for heated front seats is $18/month, $180/year , $300 for three years, or “unlimited” butt warming for $415.
The Verge notes that other subscription features include heated steering wheels (but, of course), and the ability to record footage from the vehicle’s cameras.
There’s even an “IconicSounds Sport package” that allows you to “transfer your vehicle’s unmistakable, sporty BMW sounds directly into the vehicle interior.” That last feature carries a $117 price tag, and is predicted to be popular in EVs that make no sound – not in keeping with “the ultimate driving machine.”
If you’re now dismissing BMW’s forays into taking advantage of its customers as a greedy one-off, go back to the airline example. If BMW can get away with any or all of its efforts to create more financially sustainable vehicles, they’ll all start doing it.
And down the road, it may become likelier the infotainment systems will be “bundled.” Or in much the same way our television viewing options have taken an a la carte format, will your dealership/online purchase process include checking off the media you’re willing to pay for in your interactive dashboard?
How bad will consumers want to listen to radio stations in Seattle, Syracuse, or Saginaw?
Will they be willing to pay for your radio station, your music, your morning show?
Jacobs Media has consistently walked the walk in the digital space, providing insights and guidance through its well-read national Techsurveys.
In 2008, jacapps was launched - a mobile apps company that has designed and built more than 1,300 apps for both the Apple and Android platforms. In 2013, the DASH Conference was created - a mashup of radio and automotive, designed to foster better understanding of the "connected car" and its impact.
Along with providing the creative and intellectual direction for the company, Fred consults many of Jacobs Media's commercial and public radio clients, in addition to media brands looking to thrive in the rapidly changing tech environment.
Fred was inducted into the Radio Hall of Fame in 2018.
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As a BMW owner I’d take a hot water bottle before paying for a subscription to heated seats. Remember when Detroit charged extra for every option and the Japanese manufacturers disrupted that model with standard electric windows and cassette players? Then again during the Rhapsody days the forecasters said nobody would pay for audio streaming services either. One challenge that radio has in the car is that we can fire up TuneIn or iHeart or Audacy apps on our phones and connect these via Bluetooth. There’s not much of an option when it comes to warming our tush in the car. There’s lots of options for listening to audio.
I’m with you the hot water bottle, Russ. SiriusXM is another that made the subscription model for music and talk programming work. Lots of moving parts here, but with research and time, you could see this working at some level.
If I was in the aftermarket head end/center stack business this column would make me really happy.
There’s a business model here, but it’s going to take a certain level of finesse. That may not coincide with how the average OEM beehaves. But it is a fascinating concept if they can make it work.
Although I do worry a little about this, it seems to me that BMW’s business model focuses on things the driver considers “essential” … and that definition changes by circumstances.
Let’s take the example you gave on heated car seats. In some parts of the country, no one is going to pay a subscription fee for that, because they never need to use that function. Here in L.A., my little Smart EV does have heated seats, but I have never once hit the button that activates them, because it is never cold enough for me to need that convenience. By doing what they are doing, BMW is able to take something that some customers will want or need and pay a premium over the purchase price. Others will not. BMW gets to keep the vehicle price the same (surely no one thinks they are reducing it because of this scheme) and gets extra ongoing revenue from those customers who see value and need in the add-on.
Radio is not in the same category. No one is going to make a “life or death” call about that being part of the dashboard. While that seems depressing on its face, I have a feeling that FM, at the very least, will stay in place … if for no other reason than to give BMW (and other manufacturers who decide to follow their lead) a fallback to customers resisting pitches for the full entertainment package: “Okay, but all you get is FM without the subscription.”
I’d rather take that status than be removed completely.
Hope you’re right. It still costs the OEMs money to build in a tune (maybe not so much to include an app like TuneIn). The concern would be if they offered AM?FM for say $9/month, would drivers buy? And who gets the money? As for heated seats, they’re essential in Detroit at least four months a year, but to pay extra? It might actually drive me to a different car manufacturer. Thanks, K.M.
When I purchased my hybrid Hyundai Ioniq this past January, I was told by the salesperson that it includes Hyundai “Bluelink.
It’s a cool app that allows you to remote start your car, and heat/air conditioner…As well as lock and unlock it.
He told me, initially, Hyundai charged for this. But NO one purchased the plan…so now it’s free (for the 1st 3 years).
Free. Thank you. No subscription fee is cool w ith me!
Not surprised. I’m sure someone at Hundai made all sorts of projections based on “conversions.” When that didn’t work, it became the freebie it should’ve been all along. Thanks, J.C.
Such interesting stuff Fred I had no idea. Soon only the very rich will be able to drive. That’s wild about the yearly charge for heated seats. Get ready mass transit