The future of revenue stream that is still yet untapped in the auto industry, is expected to be Subscription Fees. These are naturally based on current changes in the auto industry reflecting the changing dynamics of consumer behavior, technological advancements, and the industry’s response to emerging trends
The automotive industry’s interest in subscription fees as a future revenue stream is looked at as a natural and obvious progression. Auto manufacturers are using subscription fees to increase their revenue.
Volvo has a remote feature for some of their cars that allow the ability to start and stop the engine and lock/unlock the car with an app that costs $200 per year.
The global car subscription market size was almost $3 billion for 2023. Between 2024-2030, it is expected to reach $38 billion (per year) with a CAGR of 34% during the forecasted period.
Toyota vehicles have a remote start option that costs $8 per month, while BMW charges $20 per month for enhanced cruise control on some of its vehicles.
Ford offers hands-free driving called “BlueCruise”, which is an assisted cruise control option for all its all-electric F-150 Lightning trucks at a cost of $75 per month.
These are also available as a bundle to be added to your monthly finance payments, and can be selected through your F&I Manager at the dealership.
Future Revenue Stream in the Auto Industry is Subscription Fees
Despite the many opportunities to generate additional revenue stream by OEMs and dealerships, they should genuinely try to avoind an ambiguous value proposition.
Without a clear sense of the most promising customer segments, some companies have tried to be all things to all customers, and have failed quite astonishingly.
Subscription fee revenue model in the auto industry will skyrocket when dealers and OEMs negotiate and resolve concerns about strategic conflict.
It’s not clear to OEMs where subscriptions fit in their overall strategic agenda, and hence they worry about cannibalizing sales or jeopardizing longstanding dealer relationships.
There needs to be a cohesive way for OEMs, their respective dealerships, and auto financing providers find a way to best integrate subscriptions into their overall consumer offering.
Once there is a cohesive structure and a mutual strategic benefit for all involved, there needs to be a clear understanding of the value chain complexity and vehicle life-cycle requirements analysis.
From procurement and sales to fleet management and ultimate remarketing, these requirements—and their costs—are crucial considerations for making the economics of subscriptions work to the benefit of all parties involved in the value chain.
If this experiences mishap, then it such revenue steam will fail to meet its full potential, as it has in the past.
Why subscription fees are expected to generate billions of Dollars of revenue?
Changing Car Ownership Trends:
Microsoft is now doing it. Google is doing it. Most technology driven companies are reconsidering their revenue model to decide when and how to incorporate a recurring based revenue model into their business.
Because it is more profitable.
The traditional model of vehicle ownership is also evolving, quite dramatically since COVID. Many consumers, especially in urban areas, are shifting away from owning vehicles outright. Instead, they prefer access to mobility services on a subscription basis. Apps now allow ride sharing and co-ownership of vehicles.
More subscription services will be introduced into the Auto Industry.
Shift Towards Mobility as a Service (MaaS):
The concept of Mobility as a Service is gaining traction.
Consumers are increasingly interested in flexible, on-demand transportation solutions rather than committing to long-term ownership and the upfront cost that is associated to this major expense.
Cars are a lot more expensive today than ever before, compared to income to GDP ratio.
Subscription models align with this shift in ever growing expenses, inflation and cost of ownership and therefore allowing customers to demand access to vehicles when needed without the burdens of ownership, and the reduction of cost to this type of mobility.
Car Buyers are asking for Flexibility and Convenience:
Subscription services offer flexibility and convenience that customers are asking for.
General Motors estimates that subscription fees will bring in as much as $25 billion a year by 2030. For context, Netflix’s entire revenue for fiscal year 2023 was $32.74 billion.
Consumers can easily switch between different vehicle models, try out new features, and adapt their transportation choices to their changing needs without the long-term commitment of a traditional purchase.
Inclusion of Additional Services:
Subscription models often include more than just access to a vehicle.
They may encompass maintenance, insurance, roadside assistance, and other services. This bundled approach provides added convenience for consumers and allows automakers to generate additional revenue streams beyond the sale of vehicles.
Technology Integration:
Advancements in connected car technologies and in-car infotainment systems enable automakers to offer personalized services and experiences through subscription models.
This can include features like advanced driver assistance systems, entertainment packages, and software updates.
Predictable Revenue Streams:
Subscription fees provide a predictable and recurring revenue stream for automakers.
This can be especially appealing in contrast to the traditional model, where revenue is generated primarily through vehicle sales, which can be subject to market fluctuations.
Competitive Advantage:
Automakers see subscription services as a way to differentiate themselves in a competitive market. Offering innovative ownership models and additional services can attract a broader range of customers and enhance brand loyalty.
Data Monetization:
Subscription models generate valuable data on consumer preferences and usage patterns.
Automakers can leverage this data to gain insights into customer behavior, improve product offerings, and potentially monetize the data through partnerships or targeted marketing efforts.
Environmental Considerations:
As sustainability becomes a more critical concern, some consumers may prefer access to a variety of electric or hybrid vehicles through a subscription model rather than committing to a single, potentially outdated, vehicle.
Market Trends and Success Stories:
Success stories from other industries, such as streaming services and subscription-based software, have influenced the auto industry. Seeing the success of subscription models in various sectors encourages automakers to explore and implement similar approaches.
The auto industry views subscription fees as a way to adapt to changing consumer preferences, leverage technology, and create sustainable revenue streams in an evolving market.
Consumers and the manufacturers (as well as the dealerships) view the flexibility, convenience, and additional services offered through subscription models being aligned with the shifting landscape of transportation and ownership.
Subscription fee model will only continue to grow in the auto industry.
