The way we buy and use cars is changing. For decades, the automotive industry operated on a simple principle: manufacture vehicles, sell them to customers, and profit from that single transaction. Servitisation challenges this model by shifting focus from one-time sales to ongoing service relationships.
This transformation affects everyone from major manufacturers like Mercedes-Benz and BMW to local dealerships across the UK. Rather than simply selling a car, companies now offer subscriptions, usage-based access, and service packages that generate continuous revenue streams.
In this article, we take a closer look at servitisation in the automotive industry, and it is reshaping the future of the industry.
Table of Contents
What Is Servitisation
Servitisation represents a fundamental change in how automotive businesses operate and generate income. Instead of relying solely on selling physical products, manufacturers and dealers are building business models around services, subscriptions, and ongoing customer relationships. This section explains what servitisation means and how it’s being implemented across the automotive sector.
Defining Servitisation in the Automotive Context
Servitisation occurs when product-focused companies add services to their core offerings or transition entirely to service-based business models. In the automotive world, this means moving beyond the traditional manufacture-and-sell approach to create ongoing relationships with customers.
The concept isn’t entirely new. Car manufacturers have offered warranties, maintenance packages, and financing options for decades. What’s changed is the scale and sophistication of these service offerings. Modern servitisation involves subscription models where customers pay monthly fees for vehicle access rather than purchasing outright. It includes connected car services that provide real-time diagnostics, predictive maintenance alerts, and over-the-air software updates. Some manufacturers now offer “mobility as a service” platforms where customers can switch between different vehicles based on their needs.
Traditional Sales vs Service-Based Revenue
The traditional automotive revenue model was straightforward. Manufacturers built cars, sold them to dealers, and dealers sold them to customers. Revenue came primarily from that initial sale, with some additional income from parts and servicing. Once a customer drove off the forecourt, the manufacturer’s direct relationship with them largely ended.
Service-based models work differently. Revenue is generated continuously throughout the customer relationship. A subscription service might charge £500-800 monthly for vehicle access, creating a predictable recurring income. Connected services generate ongoing payments for features like advanced navigation, entertainment systems, or performance enhancements. Maintenance packages create regular touchpoints where companies can cross-sell additional services.
The financial implications are significant. Traditional sales create uneven revenue streams with high peaks when new models launch and valleys during market downturns. Service-based revenue is more stable and predictable, which investors value. This stability allows better long-term planning and reduces vulnerability to economic cycles.
Key Service Models in Modern Automotive
Several distinct servitisation models have emerged in the automotive sector, each with different characteristics and target audiences.
Subscription services let customers pay monthly fees for vehicle access. Volvo’s Care by Volvo programme charges a flat monthly rate covering the vehicle, insurance, maintenance, and roadside assistance. Customers can swap vehicles after a set period or cancel with reasonable notice. These services appeal to people who want premium vehicles without long-term commitments or the hassle of managing insurance and maintenance separately.
Mobility as a service platform integrates multiple transportation options into a single accessible service. Users might combine car subscriptions with public transport, ride-hailing, and bike-sharing through one app and payment system. Ford’s acquisition of Spin reflects this broader mobility vision. The goal is to become the customers’ primary transportation provider rather than just their car manufacturer.
The Role of Technology and Data
Technology makes servitisation possible at scale. Modern vehicles contain dozens of sensors generating constant data streams about performance, location, driving behaviour, and component wear. This data powers predictive maintenance alerts, usage-based insurance pricing, and personalised service recommendations.
Connected car platforms create direct digital relationships between manufacturers and drivers. Over-the-air updates keep vehicles current without service centre visits. Remote diagnostics identify issues before they cause breakdowns. In-car payment systems let drivers purchase parking, fuel, or software features without leaving their vehicle.
Data analytics inform service development. Manufacturers can see which features customers use, how driving patterns vary across demographics, and what services people will pay for. This information guides product development and service pricing strategies. It enables personalisation at scale, offering different services to different customer segments based on their behaviour and preferences.
Current Market Examples
Major manufacturers and new entrants are implementing servitisation strategies across the UK and global markets. These real-world examples demonstrate how theory translates into practice and reveal what works and where the industry is heading.
Premium Manufacturer Programmes
Mercedes-Benz operates several servitisation initiatives targeting different customer segments. Their Mercedes-Benz Collection subscription service offers access to various models for a monthly fee. Customers can swap between different vehicles based on their needs—using an SUV for a ski trip, then switching to a sports car for summer driving. The service includes insurance, maintenance, and roadside assistance. Monthly fees range from £1,200 to over £3,000 depending on vehicle tier.
The programme has revealed important facts about servitisation in the automotive industry. Customers who subscribe tend to be younger than typical Mercedes buyers, often in their 30s and 40s rather than 50s and 60s. They value variety and flexibility over ownership status. Many are testing Mercedes vehicles before committing to purchase, using subscriptions as extended test drives. This customer acquisition function justifies the programme even when subscription economics alone might not.
BMW’s subscription service follows a similar model but emphasises flexibility. Customers can upgrade or downgrade their vehicle tier monthly, providing unusual freedom compared to traditional leasing or purchasing. The company also pioneered feature-on-demand services where customers pay to unlock capabilities already built into their vehicles. Heated seats, adaptive M suspension, and other features can be purchased as one-time upgrades or monthly subscriptions.
Volume Manufacturer Approaches
Mainstream manufacturers take different approaches reflecting their broader customer bases and tighter margins. Their servitisation strategies focus more on connected services and maintenance packages than vehicle subscriptions.
Ford introduced FordPass Connect, providing remote vehicle access, location tracking, and Wi-Fi hotspot capability. The basic service is free, building customer engagement and data collection. Ford then sells premium features like remote start, advanced security, and navigation enhancements through monthly or annual subscriptions. This freemium model brings customers into the ecosystem before asking for payment.
The strategy works because it creates habit formation. Customers become accustomed to checking their vehicle status through the app, using remote features, and accessing connected services. When the free period ends or when they want advanced features, they’re already engaged with the platform. Conversion rates from free to paid are significantly higher than when services are offered cold to customers unfamiliar with the technology.
Specialist Electric Vehicle Services
Electric vehicle manufacturers lead servitisation efforts because their vehicles are naturally connected and their customers are typically more tech-savvy and open to new ownership models.
Tesla pioneered software-based servitisation in the automotive space. Their Full Self-Driving package costs several thousand pounds as an outright purchase or can be subscribed to monthly. The company sells acceleration boosts for Model 3 and Model Y, unlocking performance already present in the hardware through software. Premium connectivity provides streaming services, live traffic visualisation, and satellite map views for a monthly fee.
Tesla also controls charging infrastructure through the Supercharger network. While they’ve opened some chargers to other brands, Tesla owners receive preferential access and pricing. This vertical integration creates a moat around their customer relationships—buying a Tesla means buying into an entire ecosystem of services. Supercharger access has become a competitive advantage, particularly as public charging infrastructure reliability remains inconsistent.
The company’s service model differs from traditional manufacturers. Tesla minimises physical service centres, instead sending mobile service vans to customer locations for minor repairs and maintenance. Remote diagnostics identify most issues before customers notice problems. Over-the-air updates fix software problems and add features. This approach reduces overhead costs while providing convenience that customers value.
Business Model Benefits
Servitisation offers manufacturers and dealers concrete business advantages beyond following industry trends. These benefits affect profitability, customer relationships, and competitive positioning.
Revenue Stability and Predictability
Recurring revenue fundamentally changes business economics. Traditional car sales generate large one-time payments followed by years of minimal contact with customers. Service-based models create monthly income streams that continue throughout the customer relationship.
This stability matters during economic downturns. When recession fears loom, customers delay vehicle purchases, causing sales volumes to plummet. Subscription services experience smaller declines—some customers might downgrade their vehicle tier or pause their subscription, but the impact is more gradual and predictable. This resilience attracts investors and improves company valuations. Markets assign higher multiples to businesses with recurring revenue compared to those dependent on one-time sales.
The 2008 financial crisis demonstrated the vulnerability of traditional automotive business models. Sales collapsed, forcing manufacturers into emergency restructuring and government bailouts. The COVID-19 pandemic in 2020-2021 again disrupted sales, though government support and pent-up demand limited the damage. Servitisation in the automotive industry provides partial insulation against these shocks.
Deeper Customer Relationships
Traditional sales models created shallow customer relationships. Buyers visited dealerships, purchased vehicles, and disappeared until their next purchase, perhaps five or seven years later. Manufacturers had no direct contact with most owners and limited data about vehicle usage or satisfaction.
Servitisation changes this dynamic completely. Subscription customers interact with manufacturers regularly through apps, service bookings, and customer support. Connected services create daily touchpoints even if customers don’t actively engage—the vehicle reports its status, location, and usage patterns constantly. This ongoing contact builds relationships and generates data about customer preferences and behaviour.
These relationships reduce customer defection. Someone paying monthly for a vehicle subscription and connected services has invested in learning that specific brand’s ecosystem. Switching to a competitor means learning new apps, new interfaces, and new processes. This friction discourages brand switching far more effectively than traditional loyalty programmes.
Improved Profit Margins
Service revenue typically generates higher margins than vehicle sales, particularly after the initial investment in platforms and systems. Manufacturing cars involves massive capital expenditure on factories, tooling, and materials. Competitive pressure keeps vehicle margins relatively thin, particularly in volume segments. Service offerings face different economics.
Software-based services have near-zero marginal costs. Once developed, selling a heated seat subscription to one customer or one million customers costs roughly the same. Server costs, customer support expenses, and payment processing fees exist, but these are minimal compared to manufacturing a physical product. Service revenue flows almost directly to profit after covering fixed development costs.
Tesla’s gross margin on automotive sales averaged around 25-30% in recent years—healthy for the industry. Their services segment, including software subscriptions and Supercharger access, generates significantly higher margins. While Tesla doesn’t break out exact figures, industry analysts estimate margins above 50% for their software services.
Competitive Differentiation
As vehicles become increasingly similar in mechanical capability and quality, services offer new differentiation opportunities. Most modern cars are reliable, safe, and competent. Distinguishing one brand from another based purely on the vehicle becomes harder every year. Services provide fresh ways to stand out.
A manufacturer with excellent connected services, seamless subscription management, and responsive customer support creates competitive advantages that rivals cannot easily copy. While competitors can replicate any physical feature, building service capabilities requires different skills, systems, and cultures. This creates defensible competitive positions.
Tesla’s Supercharger network exemplifies this. Other manufacturers produce electric vehicles with comparable range and performance to Tesla models. However, Tesla’s charging infrastructure provides a tangible advantage that takes years and billions to replicate. Ford and General Motors recently announced partnerships to use Tesla’s charging network, acknowledging they cannot match this infrastructure independently.
Consumer Impact Analysis
Servitisation affects how people access, use, and relate to vehicles. These changes bring both benefits and challenges for consumers navigating an automotive market that works differently from previous decades.
Cost Implications and Ownership Economics
The financial picture for consumers becomes more complex under servitisation models. Traditional ownership involves large upfront costs followed by relatively stable running expenses. Service models trade upfront costs for ongoing payments, fundamentally changing the economics of vehicle access.
Monthly subscription fees typically range from £400 to £800 for mainstream vehicles and £1,200 to £3,000+ for premium options. These fees often include insurance, maintenance, and roadside assistance—expenses that traditional owners pay separately. For someone who might spend £300 monthly on finance, £100 on insurance, and £50 on maintenance, a £500 subscription could represent similar total costs with less hassle.
Long-term economics often favour traditional ownership. A customer paying £500 monthly for three years spends £18,000 with nothing tangible at the end. Buying a three-year-old car for £18,000 leaves them with an asset worth perhaps £12,000-£14,000 after three more years. The subscription customer pays £18,000 for transportation; the owner spends a net £4,000-£6,000.
This equation changes based on individual circumstances. Someone who needs multiple vehicles yearly through their work, wants to avoid depreciation risk, or values flexibility might find subscriptions economically rational. Someone planning to keep their vehicle for ten years will almost certainly save money buying rather than subscribing.
Flexibility and Access Benefits
Servitisation’s strongest consumer argument is flexibility. Traditional ownership locks buyers into a single vehicle for years. Changing circumstances—new jobs, growing families, house moves—might make that vehicle unsuitable, but selling and buying replacement vehicles involves transaction costs, time, and hassle.
Subscriptions eliminate this friction. Need an estate car for a month to handle home renovation materials? Swap your saloon for an estate, then switch back. Want to test a particular vehicle before committing to purchase? Subscribe for three months rather than relying on a 30-minute test drive. Planning a Scottish Highlands trip? Use an SUV for that journey, then return to your preferred saloon.
This flexibility particularly appeals to urban dwellers who might genuinely benefit from different vehicles for different purposes. The car that makes sense for daily commuting differs from what works for weekend trips. Subscriptions let them optimise their vehicle choice for each use case rather than compromising with a single do-everything vehicle.
For electric vehicles specifically, subscriptions address range anxiety and charging uncertainty. Someone unsure whether an EV will work for their lifestyle can subscribe for several months to test it properly. If it works, they might continue subscribing or purchase confidently. If it doesn’t, they’ve discovered this without committing tens of thousands of pounds to a vehicle that doesn’t meet their needs.
Data Privacy and Control Concerns
Connected services generate substantial data about when, where, and how people drive. This creates legitimate privacy concerns that manufacturers and regulators are still working to address properly.
Vehicles now track location constantly, record driving behaviour, monitor which features are used, and sometimes even capture audio from in-car conversations. This data informs service development, enables predictive maintenance, and helps manufacturers understand customer preferences. It also reveals intimate details about people’s lives—where they go, who they meet, and how aggressively they drive.
Under UK GDPR regulations, personal data belongs to the individual it describes. This means drivers should have the right to access, correct, and delete their vehicle data. Practical implementation remains challenging. Manufacturers argue that some data is necessary for vehicle operation and safety standards, making deletion impossible. They claim aggregated anonymised data isn’t personal data, though researchers have shown that location data can often be de-anonymised.
Security concerns accompany privacy worries. Connected vehicles can be hacked—researchers have demonstrated remote control of various vehicle functions through software vulnerabilities. While manufacturers patch known vulnerabilities quickly, the expanding attack surface created by constant connectivity introduces new risks. A traditional mechanical car cannot be hacked remotely; a connected car potentially can.
Service Quality Dependencies
Traditional ownership gives customers control over their service providers. Don’t like your local dealer? Use an independent mechanic. Want to skip some maintenance? That’s your choice. Service-based models reduce this autonomy.
Subscription services typically require using approved service centres and following prescribed maintenance schedules. This ensures quality but removes choice. Connected services depend on reliable network coverage and the manufacturer’s server uptime. When those fail, features stop working. Over-the-air updates occasionally introduce bugs that disable vehicle functions until patches are deployed.
Some UK customers experienced these issues firsthand. A major manufacturer’s subscription service suffered app problems, preventing customers from accessing their vehicles. The issue lasted several hours during morning commute time, stranding people. While the company apologised and provided compensation, the incident highlighted how dependent subscribers become on the manufacturer’s systems functioning correctly.
Future Industry Outlook
The automotive industry will continue transforming as servitisation expands and matures. Technology improvements, regulatory changes, and shifting consumer preferences will shape which service models succeed and how traditional business practices adapt.
Technology Enablers and Barriers
Several technological advances will accelerate servitisation adoption over the coming decade. Vehicle autonomy, when it becomes commercially viable, changes everything about service models. Truly self-driving vehicles can reposition themselves, pick up customers, and handle maintenance tasks without human involvement.
The UK government has announced plans to allow self-driving vehicles on British roads by 2025, with a regulatory framework being developed. Truly autonomous vehicles that require no human oversight remain years away from widespread deployment. Current “self-driving” systems still require driver attention and intervention.
Battery technology improvements affect electric vehicle servitisation. Current batteries degrade over time, creating uncertainty about long-term subscription economics. Better batteries lasting vehicle lifetimes simplify these calculations. Faster charging reduces the main operational constraint on shared electric vehicle fleets, making them more competitive with conventional vehicles.
Regulatory and Policy Developments
Government policy will shape servitisation evolution through decisions about data ownership, privacy protection, and taxation. The UK government recognises that current vehicle taxation based on ownership doesn’t work well with subscription and sharing models. Vehicle Excise Duty applies to registered vehicles regardless of usage patterns.
Future policies will likely tax vehicle usage rather than ownership to remain fair and effective. Distance-based road pricing has been discussed for years, with technology now making it practically feasible. Connected vehicles already track mileage accurately. Implementing such a system would fundamentally change how people think about transportation costs.
Insurance regulations must adapt to shared and subscribed vehicles. Current rules assume vehicles have single primary drivers with consistent usage patterns. Subscription vehicles might have different drivers monthly. Shared vehicles have dozens of users with varying experience levels. Insurance frameworks need updating to address these realities.
Market Structure Evolution
The automotive value chain will restructure as servitisation matures. Traditional dealerships face questions about their role in service-based models. Their current business models depend on sales commissions, financing fees, and service work. Subscription services reduce or eliminate sales commissions.
Some dealers are evolving into mobility advisors—helping customers choose appropriate services and vehicles for their needs rather than pushing specific sales. Others focus on becoming experience centres where potential customers interact with brands and vehicles before subscribing.
Pendragon’s subscription service operates independently of any single manufacturer, offering vehicles from multiple brands. This aggregator model provides customer choice while handling operational complexity. If this approach succeeds, dealers might reinvent themselves as mobility service providers rather than manufacturer representatives.
Long-Term Transformation Scenarios
Several possible futures exist depending on technology development pace, consumer acceptance, and regulatory decisions. The most likely scenario involves coexistence between traditional ownership and service-based access for at least the next 20 years.
Traditional ownership won’t disappear. Many consumers prefer owning vehicles, particularly outside urban areas where public transport and shared mobility are impractical. Rural and suburban markets will continue buying vehicles conventionally while using some connected services. Manufacturers will serve both segments, selling vehicles to owners while offering subscriptions and services to others.
The UK market structure supports this prediction. London and major cities have extensive public transport and growing mobility service options. Rural areas have limited alternatives to private car ownership. Income levels affect preferences too—wealthier consumers might afford the premium for subscription flexibility, while budget-conscious buyers prefer the long-term economics of ownership.
Conclusion
Servitisation in the automotive industry represents a fundamental shift from product sales to ongoing service relationships, affecting manufacturers, dealers, and consumers through new business models built around subscriptions, connected services, and mobility platforms. While traditional ownership will persist, particularly outside urban centres, the expansion of service-based access continues to grow.