Onboard Telematics: Does its increased adoption in vehicles mean fewer sales for independent shops?

AKRON—Onboard telematics systems, such as General Motors Co.'s OnStar, have transformed the car from just a mode of transportation into a personal assistant with connectivity to the outside world, GPS navigation, as well as diagnostics of the car itself. It's a tech junkie's dream, but telematics could become the automotive aftermarket's nightmare. According to Visiongain Ltd., a London-based business information provider, the car industry is incorporating telematics increasingly into vehicle design for the purposes of infotainment, safety, security and communications. Con-sumer expectations are pushing telematics adoption, but so are government regulations that require vehicle telematics for emergency assistance and stolen vehicle tracking. Visiongain claims the increasing demand for wireless connectivity for smartphones and tablets is driving the automotive industry “to adjust to a new lifestyle consensus” and incorporate in-vehicle internet connectivity solutions. It noted that the European Union, Russia and Brazil are requiring telematics for safety purposes, with the installation of basic Telematics Control Units (TCU) required in all new vehicles in Europe beginning in 2015. These factors offer the opportunity for automotive OEMs, aftermarket service providers, software developers and telematics services providers to provide a broad range of new services that could lead to new revenue streams and enhancement of customer loyalty, according to Visiongain. “We expect that by 2025 all cars will be connected in one way or another. As a consequence Visiongain has determined that the total revenue from the connected car market in 2013 will reach $21.7 billion,” the firm said, predicting the market will jump to $25.2 billion this year. The subject of telematics came up during last fall's Automotive Aftermarket Parts Expo (AAPEX) show in Las Vegas, where several automotive aftermarket analysts discussed why auto repair shops should be concerned about the technology. “It's a deliberate strategy on the part of the OE car companies to build a stickier relationship with their product—to follow it through its entire life cycle, to get more contact out of the customer, to proactively send maintenance reminders and perform remote diagnostics,” said Scott Luckett, CIO at the Auto Care Association (ACA)—formerly the Automotive Aftermarket Industry Association. All the OEMs are developing a telematics strategy or a connected car strategy, he said. “When we talk about telematics, we hear about a wide variety of features that's everything from navigation and the consumer concierge services, with turn-by-turn directions, and getting text messages and tweets and internet services in your vehicle. But the real motivation, the monetization of the telematics for the car companies is in that VRM—vehicle relationship management.” However, Roger Lanctot, associate director of automotive, Strategy Analytics, told AAPEX attendees he was there “to offer some reassurance that the car companies are not on verge of stealing your industry. But at the same time I don't want anybody to be complacent. “You should be concerned that they are trying, but they are fumbling so badly and struggling, you have plenty of time to move in and get your ducks lined up along the avenues of defining standards and ensuring you have access to the vehicle...” Mr. Lanctot noted that with telematics, auto dealerships can be notified of the vehicle's scheduled maintenance and they are expected to contact the car owner for scheduling an appointment. But with current systems, dealers don't get notified of real-time diagnostic failures in the car or that a part is in need of repair or replacement. “Be concerned,” he warned. “They're trying to get this right but it will take time.” “Telematics is a customer-retention tool. The car companies are ultimately working toward a place where they won't charge for that modem in the car. It's too important for them to have that there,” Mr. Lanctot said. “The car companies are spending a lot of money on these embedded systems, but at the end of the day, the customer doesn't want to pay for this stuff.” They also don't want to pay for the embedded modem in their car with subscription services, he continued, and “at the end of the day you're basically asking the customer to pay for the vehicle diagnostic system. So it really doesn't make sense. “What it really is there for is customer-retention purposes. And so the car companies are slowly coming to understand this—that you don't want to make the customer pay for the embedded modem in the car. “But it will take them anywhere from three to five years to figure this out. So there is plenty of time to get in there with aftermarket products to better serve the customers.” Mr. Luckett noted that 2014 BMWs already are being offered with two basic telematics features activated—remote diagnostics and automatic crash notification—at no cost for 10 years. “It's a game changer,” he said. The automotive aftermarket should be concerned about telematics “because this technology makes the OE car company, the builder of the vehicle, be online with their product, monitoring it, measuring the odometer, proactively sending marketing messages and prompts to the customer,” Mr. Luckett said. “The aftermarket, therefore, is off-line with the vehicle and waiting to react and hoping the customer remembers 'Tony's Garage' down the street where they've had their family's vehicle serviced. “So it is not on a level playing field and our interest is in the consumers' continued right to choose where they have their vehicles serviced, with the same level of connectivity and information. He said the ACA's position is “very simply that this is a consumer choice opportunity. It's your car and it's your data on that car. It's all wrapped in a lot of privacy and security issues. Where's that data going to go? We believe the consumer has the right to choose where that data goes....” “The good news is there are a number of aftermarket telematics products entering the marketplace,” Mr. Luckett said. Vehicles manufactured since 1996 have an onboard diagnostic port and companies have used this port to plug in devices that monitor the health of the vehicle systems, control windows and other parts of the vehicle and record driving behavior, for example. Aftermarket telematics also have gotten a big push from insurance companies that use devices to track driving behavior in order to underwrite policies, according to Mr. Lanctot. There are different devices to connect to the car, such as mechanic-installed devices, self-installed mobile and Bluetooth. However, there is still the concern about safety and privacy. “Car companies are justifiably worried about folks hacking into their vehicle and introducing malware and causing the accelerator and the brakes to operate in unintended fashions...,” Mr. Luckett said. Several automotive aftermarket organizations are trying to collaborate with car makers and engineers to set standards for vehicle telematics, “so the insurance company, maybe the roadside emission testing stations, toll plazas and aftermarket service providers can all connect with that vehicle in a secure, approved authenticated fashion. “You don't want the Wild, Wild West beaming in and out of your vehicle,” he said. Almost a year ago an aftermarket telematics task force was created that included the ACA, the Automotive Aftermarket Suppliers Association, the Automotive Industries Association of Canada and the Equipment & Tool Institute. Its stated goal: to set up SAE standards and policies to address government regulations, privacy rights, technical challenges for gateway solutions, and educating service providers, regulators and eventually the public, Mr. Luckett said. Meanwhile, growth in the commercial vehicle telematics market is mainly driven by three factors, according to Visiongain: c The increasing fuel prices accompanied with strong price-competition in logistics create downward pressure on the profit margins of transportation companies and fleet operators, which drive them to adopt telematics to sustain profitability and gain a competitive advantage; c Global regulatory mandates in the European Union, Russia and Brazil that require the usage of telematics for safety purposes; and c The increased demand for wireless connectivity that is driving the automotive industry to incorporate in-vehicle Internet connectivity solutions and offering the opportunity to substitute functions of the onboard computer with smartphones and tablets. However, the high cost of telematics hardware restrains the penetration of telematics in commercial vehicles, especially in small and medium fleets, according to Visiongain, while large fleet operators and transport companies already are using fleet management systems and may be reluctant to invest further in telematics solutions, especially in regions facing an economic downturn. These factors, as well as concerns about privacy and potential exposure of sensitive company data, “constitute the major threats to the rapid expansion of telematics into commercial vehicles,” the firm said, noting that it expects the value of the global commercial vehicle telematics market will reach $11.2 billion in 2014. To reach this reporter: kmccarron@ crain.com; 330-865-6127.