Ford finds promise in subscriptions for commercial buyers

As automakers work to convince dealers and investors that they can generate big profits in the years ahead by charging monthly subscription fees for software-based services, Ford Motor Co. is proving the business model to be more than theoretical — at least with some buyers.

Roughly 400,000 customers, or about 12 percent of its total connected-vehicle base, now pay for subscription services offered by Ford Pro, the automaker's commercial unit. That's 60 percent more than just a year ago, and Ford thinks it can triple that figure to 1.2 million by 2026.

Big money is at stake. By 2026, executives say, 20 percent of Ford Pro's earnings before interest and taxes will come from software services. They project that Ford Pro will generate $6 billion in earnings this year and by 2026 will have the highest margins in the company, at around 14 percent.

Ford Pro is at the vanguard of a business model that executives say will make the company less cyclical and boost profits to fund the transition to electric vehicles. Even as questions remain about the viability of subscriptions on the retail side, Ford has been able to make a compelling case for such services to commercial buyers.

"There's actually a value proposition for those customers," Sam Abuelsamid, principal research analyst at Guidehouse Insights, told Automotive News. "Most of what they're paying for is telematics, and many of those customers have already been paying for those services from various companies. The same is not true for retail customers."

Ford Pro's subscriptions mainly relate to telematics that monitor vehicle health and driver performance as well as charging management.

Among the offerings is Viizr, a $39-per-month field service tool that helps users digitize work quotes and invoices. Ford Pro also offers a number of charging services and has said it expects to generate $1 billion in revenue from commercial charging services by 2030.

Ford Pro CEO Ted Cannis said such offerings are no-brainers for fleet owners because they reduce costs and downtime. Cannis cited one instance in which a customer said software services helped identify more than $25,000 in annual savings from excessive idling.

"We'll be able to capture more share of wallet as the economic value we provide increases," Cannis said in a presentation last week. "We're expanding our revenue pools beyond the vehicle itself and extending it across the whole vehicle life cycle."

Ford Pro, which offers EVs as well as gasoline-powered vehicles, said it expects to eventually earn $2,000 per vehicle annually on subscriptions, or about $167 a month.

For comparison, Ford said the average Bronco buyer spends about $1,700 at the time of purchase on accessories, a lucrative profit driver the company has focused on growing in recent years.

Although he wouldn't say how much Ford Pro earns per vehicle on subscriptions today, Cannis said he's confident in its growth projections. As an example of the potential it holds, he said a smaller business owner operating 10 vehicles might start paying subscription fees on one of them and then add those services to the rest of the fleet after seeing the benefits.

"When they come in for the one, I can go get the other nine," he said.

At this early stage, Ford is experimenting with how much to charge customers and how to bundle its services. Alex Purdy, head of digital product for Ford's Model e EV unit, said the company is even open to offering some services for free if they lead customers to spend money on vehicle repairs.

"There's a whole bunch of prognostic items that lead to great service opportunities, really profitable service opportunities," he said. "Might we consider giving away that feature forever? The answer is yes."

What remains to be seen is how open Ford retail customers will be to purchasing subscriptions.

Studies have shown that many customers are wary of automakers nickel-and-diming them with monthly fees for heated seats, extra horsepower or driver-assist features.

Abuelsamid of Guidehouse Insights said automakers that take such an approach risk alienating potential customers. And they could lose money if they build vehicles with pricey add-on features that few buyers opt to turn on and pay for.

"There's a genuine risk for the OEMs, depending on how the pricing model works out," he said.

Ford CEO Jim Farley has said the automaker won't charge for amenities such as heated seats but rather focus its subscriptions on features with benefits that customers want. One area in which it sees potential is BlueCruise, its hands-free driver-assist feature.

Executives said at Ford's capital markets day last week that about 200,000 users currently pay for BlueCruise, which has added lane-change capability via an over-the-air update. That update has led to 25 percent fewer disconnects of the service, they said, predicting that future planned releases could reduce disconnects by 85 percent.

If Ford does start to bring in significant subscription revenue on the retail side, it's unclear how the company would share that money with dealers.

Farley said the financial projections shared last week were how much the company would earn per vehicle, not including retailers' slice of the pie. The amount dealers get might varies depending on the type of vehicle.

"We think it's going to be really different between retail and Pro," Farley said. "We're in the early stages of learning about that. It's very clear on the commercial side that ... they're involved in the software sale. On the retail side, it's a little less clear. We're experimenting right now with the best model."

Regardless, Farley said BlueCruise and Ford Pro show that subscriptions have potential.

"We have 600,000 software subscribers," he said. "It's not a theoretical thing for us."