Guest commentary: The ‘appification' of vehicles: Will feature subscriptions add value?

As the lines between Detroit and Silicon Valley blur, the automotive industry continues testing out the boundaries between new sources of revenue and customer satisfaction with the "appification" of vehicles.

"Appifying" is gaining renewed attention as electric-vehicle pricing comes under the microscope in the aftermath of tax incentives and price caps included in the Inflation Reduction Act passed by Congress in August.

A growing array of features and functions available in cars and light trucks can now be activated and enabled digitally through manufacturer apps and third-party online services on a subscription basis. As the phenomenon evolves, it promises to leave an indelible mark on the economics of conventional cars and EVs.

The rub, of course, hinges on the fact that services delivered digitally can also be taken away, raising interesting questions about what exactly consumers are buying when they make a connected-car purchase.

For the most part, this early action in vehicle apps revolves around offerings familiar to consumers' digital existence. Consumers are used to paying a monthly fee for their music, video entertainment and internet in their vehicles — just as they do for their homes.

But as connected-car features grow, functions that were once considered an intrinsic part of a vehicle purchase — such as keyless fobs — are now value propositions that consumers can rent but not own.

A sense of urgency on this topic has emerged as the industry comes to grips with income thresholds and cost limits included in the IRA. To stimulate and protect the U.S. EV market, the act encourages the industry to introduce vehicles at price points that help new, less-affluent buyers take advantage of income-based tax credits for electric sedans priced under $55,000 or electric trucks and SUVs priced under $80,000.

It does not require a lot of imagination to envision the difficult boardroom discussions underway to figure out how manufacturers and dealerships can meet these requirements without sacrificing the profits from pent-up demand that — for now, at least — persist in the market. Even before the IRA, Tesla was well known for creating sticker price points that could take the same vehicle model up to $40,000 higher with digitally enabled add-ons.

As new-vehicle prices moderate with rising inventories over the next few years, the industry will look for other ways to maintain the high prices that drive record profits. The idea of using apps to tailor ownership experiences for additional costs to consumers will likely extend to all categories of vehicles. For instance, the Detroit 3 have gone on record with objectives to capture tens of billions of dollars in app-based services by 2030.

The open question is: Are car buyers ready and willing to see such a rapid and dramatic change to the vehicle ownership experience?

Early indications do not bode well for the industry. A key reason for reduced optimism is that manufacturers have not delivered high-quality digital experiences to date.

According to the most recent J.D. Power U.S. OEM App Benchmark Study, vehicle owners are underwhelmed with the most basic of offerings — mobile app integration. Despite considerable efforts and significant investments in developing mobile apps for vehicles, many are falling short of automakers' hype. The negative consequences of not delivering what's promised can be profound — especially if the app is linked to other vehicle features related to connectivity, mobility, electrification and automated driving.

Beyond solving the technical and user-experience issues, car companies and dealerships would be well advised to determine what adds value to their customers' lives.

In general, consumers have accepted subscription services when features are not integral to the driving experience or alternative options are available from other sources.

Thus, consumers are likely to be satisfied when the navigation service included with a vehicle's infotainment package is preferable to depending on apps available on their mobile device. Alternatively, they may choose to buy the functionality to avoid long-term monthly charges.

On the other hand, the same analysis reveals why consumers can — and do — get upset when the seat heaters they thought they owned with the purchase of their vehicle are turned off.

The truth is that a tremendous amount of change is taking place on both the demand and supply sides of the equation.

Consumer attitudes about their digital lives are evolving. Keeping track of how those attitudes affect ownership expectations is critical to successfully managing customer adoption of app-enabled options.