BMW, the embattled budget car manufacturer that has no choice but to turn to less-savory methods of earning income as its market share fades thanks to stiff competition from the Kia Rio and Nissan Versa, has a new idea for earning revenue. Going forward, instead of charging a onetime fee to enable Apple CarPlay, the luxury auto company will instead charge customers $80 per year.
Apple CarPlay, for those of you who aren’t plugged into the Apple ecosystem, is an option that allows your car’s baked-in infotainment system to function as a front-end for accessing content or functionality on an iPhone. If your vehicle supports voice functionality, you can use Siri to order various commands. If not, you can use the touch screen or knobs and dials to control your phone instead. Apps like Phone, Music, Apple Maps, and iMessage are available via CarPlay, as well as some third party applications like Spotify. Vehicles compatible with Apple CarPlay are a fairly limited number of models mostly in 2016 or 2017, though there are some 2015 exceptions from Hyundai and Kia. A full list of supported makes and models is available on Apple’s website.
Now, BMW was price-gouging already for CarPlay — companies like GM make the feature available for free, while BMW charges you a one-time fee to provide it, on the not-entirely-crazy theory that if you can afford to buy a BMW, you can afford $300. But this shift from a $300 one-time fee to an $80 annual fee is an obvious attempt to wring more money out of the long-term buyer. BMW is claiming that the move will save drivers money, and it will — if you only lease a BMW for three years or less. After that, you’re cash in BMW’s pocket.
There was some confusion, initially, over whether or not Apple was changing its fee structure for CarPlay. Initial remarks by BMW Canada implied it was Apple that was shifting to a per-annum license fee, which would make this a much more reasonable case of BMW passing a fee along. But this point appears to have been a miscommunication, according to Cnet. While auto manufacturers do have to pay a fee to join Apple’s MFi manufacturing program, that’s no different than any other licensee and does not hit auto companies with any specific or particular fees.
Of course, one counter-argument is that leases are so common in BMW-land, the company is ultimately giving up some money here. If you’re one of the estimated 70 percent of BMW owners who lease, and you trade in your vehicle every three years, you do save money — you’ll pay $240 versus $300 for your in-vehicle CarPlay. But while 70 percent is the commonly reported figure for leasing versus owning a BMW, it’s not clear how many people swap out every three years or how long the other 30 percent tend to own their cars. And that changes the equation. If your average non-leased BMW is 10 years old, then the car company has just theoretically turned 30 percent of its customer base into a very profitable residual income stream, relative to what those customers previously paid for the same service. Instead of that one-time fee of $300, those same customers will have shucked out $800 for the same privilege.
Why Would BMW Care?
All of this sounds like pitiful amounts of money compared with the tens of thousands of dollars that a BMW sells for, but consider this: Earning money on residual income is fabulous for margins. It props up earnings and improves profits by padding the bottom line with cash that costs the company essentially nothing to earn.
The shift to self-driving cars promises significant upheaval for vehicle markets. It’s not clear what car ownership or usage rates will look like once companies are fighting to deliver cars to your doorstep on-demand, and there are some who think it could kill car ownership altogether, long-term. But whether this happens or not, vehicle manufacturers are facing vehicle support life cycles quite different from anything they’ve previously known. Security updates, self-driving patches, infotainment updates — these are all a part of the future for every vehicle, not just high-end luxury models.
Cnet calls this move from BMW egregious, given that Apple charges no specific fees for CarPlay, and it is. It’s also not terribly much money compared with the price of a BMW. But I suspect this isn’t quite a cash grab or a minor point. It’s a company taking a baby step towards experimenting with different ways of earning money off its cars, at a time when there’s more uncertainty over how vehicles will be operated in the future than there used to be.