Motor Mouth: How automakers are going to screw you with subscriptions

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There’s a sucker born every minute.

P.T. Barnum

General Motors says it’s found a new revenue stream. A brand-new revenue stream, in fact. One that will be worth up to US$25 billion by 2030; much, if not most, of which will be pure profit. Lucrative enough, says the carmaker, that it will boost its profit margins to an incredible 14 per cent, more than double its current bottom line.

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The best thing about this new profit centre? GM won’t have to sell you a single solitary bit of hardware. To make that extra US$25 billion, it doesn’t have to sell you a new car. It won’t even have to persuade you — at least not at the dealership — to tick off the box that says you’re willing to pay for seat heaters, an upgraded audio system, or, in the not-so-distant future, more performance from your Fancy Dan electric vehicle. All it has to do is convince you to—

Subscribe to — as in rent — something you already own.

Let me explain. First off, I lied. Over-the-air subscriptions are not, in fact, an all-new revenue stream for General Motors. OnStar, the General’s emergency alert system, is now more than 20 years old and, though it was free in its introductory years — and is still offered gratis for an introductory period on some of its luxury models — GM now charges a monthly fee for the (totally) worthwhile privilege of knowing that an ambulance will be automatically dispatched should you ever be involved in a collision.

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Nor is General Motors the only automaker looking to capitalize on the new “subscription economy.” Audi and BMW are working with an option list they call Function on Demand ; Mercedes-Benz has Mercedes Me; and even mainstream brands such as Toyota and Kia have connectivity features that require a monthly subscription. Eventually — and by “eventually” I mean next year — virtually all automakers will be offering subscription-paid add-ons.

But the US$15 a month GM charges for an emergency alert system is not the US$135 per month per car it estimates will be required to generate that US$25 billion . For that, GM will also have to charge as much as US$25 a month for its vaunted SuperCruise autonomous driving system, not to mention monthly fees for upgraded navigation systems, in-vehicle personalization features, and even safety items such as park assist.

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Meanwhile, Ford is planning to charge a recurring fee for its Blue Cruise self-driving feature. Ditto Volkswagen, which, according to Carbuzz , is looking to charge future owners seven euros an hour to use its as-yet-unreleased Level 4 autonomous system. Mercedes-Benz is looking to charge future European EQS owners as much as 489 euros a year for an upgrade that allows the new luxury EV’s rear wheels to turn as much as 10 degrees (the standard rear-wheel steering system articulates the rear wheels 4.5 degrees at no charge). And BMW is looking to rent even more innocuous features such as seat-heaters on a monthly subscription basis.

The difference between these “performance” upgrades and current over-the-air services is that, while the latter requires additional manpower and ongoing management, these new subscriptions are simply activation fees for hardware already installed in your vehicle. Mercedes has not magically found a way to make a car steer its rear wheels just by dumping an over-the-air software update into its ECU. The same goes for the self-driving system “subscriptions” GM, Volkswagen, and others plan on renting you. All rely on sensors, cameras, and computer hardware already built into the car. They’re just charging you to turn them on.

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And therein lies the dirty little secret of this new generation of subscription fees — they force you to pay for something you already own. Every single one of the features mentioned above — and the many more that are soon to follow — are already installed in your car. Even if you choose not to opt for the upgrade, you’ve still paid for the hardware. When someone tells you they offer an over-the-air activation of your car’s active cruise control system, what they’re really telling you is there’s already a radar sensor built into the grille.

Indeed, in this newfangled automotive subscription economy, you’re going to be screwed if you do and screwed if you don’t. Even if you don’t choose to upgrade your seats to full bun-warmers, you will have already paid more up front for hardware you’ll never use. If you do opt to upgrade, you’re still “renting” something that was built into the price of your car.

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The difference is these new subscriptions are simply activation fees for hardware already installed in your vehicle

And you don’t really think they’re installing all that hardware — again, that you may or may not use — as a loss leader, do you? No siree Bob, you can pretty much guarantee the automakers are going to make money off you coming and going; there’ll be a profit built into every extraneous computer chip and radar sensor built into your vehicle whether you upgrade or not. If you do go all in, the monthly software fee is pure gravy. In other words, the only way BMW’s subscription model for seat-heaters saves you money — only turn it on for the winter months! — is if you believe Munich has found a way to magically beam heating pads, connector wires, and switchgear into your seat over the air. As Tyson Jominy, vice-president of data and analytics at J.D. Power, told Consumer Reports: “As a consumer you’re going to end up paying for it on the front end, whether or not you subscribe to it.”

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Now, to be fair to automakers, we consumers are hardly blameless in our own fleecing. After all, we have been making a habit of buying cars we can’t afford long before marketing departments had even heard of the subscription economy. We’ve turned our pickups into luxury vehicles; Mercedes, BMW, and Audi have become mainstream brands; and we Canadians have all but abandoned the econo-cars that used to be our best sellers. The transaction price of cars has boomed in recent years — in the U.S., the average cost of a new car is now an astounding US$43,355 — at least in part because low interest rates have made us all greedy.

And when low interest rates weren’t enough to satiate our interminable lust for bigger and more luxurious, did we moderate our demands? Not hardly. We just invented the eight-year auto loan, leaving us indebted for pretty much the entire lifespan of the car. Canada now boasts more household debt per GDP than any of our G7 confreres , at least in part because we’re spending too much on cars. If we refuse to live within our means, who can blame automakers for wanting a piece of that oh-so-profitable subscription pie, especially when — and I invite you to check your own bank or credit card statements to see how pervasive those monthly recurring fees have become — we seem so eager to be duped.

Indeed, so effective will be these rent-what-you-already-own schemes that even Barnum’s famous quote about suckers doesn’t nearly capture what a great scam these subscriptions really are. A better metaphor, I think, might be to paraphrase an even more famous proverb: Sell a man a seat heater and you’ll make a handy profit; rent a man a seat heater and you can screw him for a lifetime.