Telematics is crucial to the commercial success of future vehicles. But can the car industry forge a relationship with the IT sector to get it right?
A state of ‘Cold War’ is said to exist between the car industry and the information technology sector, with car makers characterised as being on the eastern side of the divide. They know that technologies for in-car entertainment, voice-activated controls and others will help to make their vehicles a commercial success. But that means partnering with IT companies – a sector that will not sit easily in the traditional automotive supply chain.
Telematics services such as satellite navigation and internet access are slowly but surely finding their way into the top end of the market (see sidebar). But integrating the type of hi-tech electronic services people take for granted in their homes and offices into mass-production models has become a headache and a golden opportunity in equal measure for car manufacturers.
Get it right and the potential for extra sales and new revenue streams is huge. Get it wrong, and they face seeing a perfectly good vehicle lose out to a better-equipped rival. Some even question whether the vast R&D push by car makers in the area will ever make money. But it seems they have no choice but to try.
The imperative was summed up by Niklas Wahlberg, head of Ford Premier Automotive Group’s Global Centre of Excellence for Telematics. ‘What is the actual difference between a Mercedes, a BMW, a Volvo and an Audi except the brand? If you look at it from a feature set, they are becoming more and more like each other so the car companies will need to differentiate in a new way,’ he said.
Entertainment and data systems such as newsfeeds and traffic information, telecoms, electronics and software will all play an important role in helping manufacturers to distinguish their cars from those of their rivals.
This is forcing car makers to adjust to new ways of thinking and operating, said Wahlberg. ‘This is very much about changing the way automotive companies work, how the engineers do their job and how the aftermarket and sales people do theirs. That is why it is so difficult, because it means we are trying to transform our companies, and you can’t do that overnight.’
Car companies are generally not yet ready for that transformation, Wahlberg admitted. Managers with years of expertise in areas such as engines, alloy wheels and even air-conditioning systems are on less certain ground in the entertainment and telecoms fields.
It is unsurprising that all this makes the automotive industry twitchy, because one thing it hates is feeling that it has to rely on those outside its ranks to achieve success. Over many years OEMs have created supply chains in their own image, and there has never been any doubt over who is the boss. From the biggest Tier 1 to the smallest workshop way down the supply chain, everything is geared to serving the needs of the production lines of Ford, GM, Volkswagen and the rest.
But the desire to provide hi-tech electronic services means working with a whole new set of partners in the information and communications technology (ICT) sector – software and telecoms companies, mobile phone operators and even content providers such as AOL and Yahoo.
The often uneasy nature of the relationship between the auto industry and the ICT sector was brought into sharp focus at a recent telematics industry conference, where it was likened to an east-west ‘Cold War’. The east in this case is the automotive heartlands of the US, and particularly Michigan. The west is California and Seattle, home to many of the IT and communications specialists whose expertise is needed to connect the car to the outside world.
If one company symbolises the rampant advance of software-drive applications in everyday life it is Microsoft, and Bill Gates’ empire has not been slow to recognise the potential for its products inside the family car.
David Nasky, Microsoft’s industry manager for automotive in Europe, claimed that the car industry’s attempts so far to come to terms with the new world of IT and telecoms have been mixed. ‘I think it has learned some expensive lessons, the main one being that you cannot create a silo in the car.’ According to Nasky, car manufacturers’ notion by that their info-tainment systems can operate independently of the rest of the world is a non-starter. This may work to an extent for the very top-of-the-range luxury models, where people are prepared to pay for the privilege of being different. ‘But there is just not the volume of sales there to bring a return,’ said Nasky.
The vast majority of drivers are accustomed to using a familiar set of communications tools outside the car, and they are reluctant to abandon these inside the cabin. Microsoft already has a foothold in the systems of several well-known car brands — Volvo, CitroÃ«n, Toyota and Mitsubishi among them – and produces a bespoke software platform for automotive applications.
But the automotive sector, while cautiously courting its new hi-tech friends, is displaying every sign of nerves. Its record so far in the telematics arena has been less than glowing, with Ford’s first foray into the sector Wingcast already closed and GM’s OnStar beset by doubts (see sidebar).
But the automotive giants might be less nervous if they could be more certain about making money from these services. Their dilemma is that cramming more and more hi-tech electronic wizardry into the cockpit does not guarantee added revenue. Buyers of mass-market cars expect their vehicles to get cheaper, not more expensive.
Offering customers in-car access to wireless information services, entertainment devices and position-based safety systems, while desirable, is unlikely to lead to huge profits for the car makers, admitted John Archer, manager of Ford Europe’s telematics business strategy. ‘Customer resistance to paying for services is quite severe. One premium German car manufacturer tried offering services free of charge. But though they were offering a free service the perceived value was such that the uptake was only 40 per cent.’
But the technology might help companies to retain their customers through a better understanding of their behaviour, by providing information about their lifestyle and driving habits. Car makers are also investigating the use of telematics to reduce costs by improving logistics operations, and offering diagnostics information on the health of the vehicle and individual components. This would allow them to use the information when designing the next model, as well as providing rolling replacement of parts and reduced warranties where a component is known to have problems.
That way the price of providing services customers want but for which they are not prepared to pay a premium can be balanced by cost benefits for the car maker, said Archer. ‘If we can cover some of the cost in other ways, by creating benefits for the company such as diagnostics, then we can at least reduce it from a £900 box to a £300 or £100 box.’ But Archer admitted: ‘That again is a chicken-and-egg situation: I want all my cars to have it or I don’t get the benefits, yet to achieve this I have to get my price down first.’
Many commentators believe the key to a successful telematics strategy may ultimately come by linking it with safety – the other major factor likely to differentiate one car from another over the next few years.
Many of the integrated electronics that will power safety features such as crash avoidance could also form the basis for advanced entertainment, navigation and communications services. Indeed, this is a road manufacturers may be forced to go down by a firm smack from the regulatory authorities: the European Commission wants to see all vehicles fitted with a safety device to provide positioning information to the emergency services in the event of an accident. Car makers are unwilling to swallow the cost of fitting this device to all their vehicles without support from other organisations likely to benefit, such as insurance companies and ambulance services.
In theory, however, the European initiative could boost consumer interest in the services car companies will be able to offer using telematics technology. ‘If we can create a value in the technology – if it has an emergency-call device, if it can tell you when the car is breaking down, and in this way help to protect you – and we can build up these elements into a commercial package, then people will pay,’ said Archer.
But it is also hedged around with danger because car makers know only too well that where safety is concerned drivers expect more for less.
While there is likely to be a high level of consumer interest in improved safety, buyers are unlikely to put their hands in their pockets, said Chris Webber, vice-president of automotive and telematics at analysts Strategy Analytics.
‘Consumers expect safety to be part of the car, so it will be hard to get them to pay for it. Competitive pressures will mean more and more car makers will offer it as standard,’ he said.
But people might be willing to pay more for a greater choice of entertainment equipment, such as improved audio systems that include MP3 players and compressible CDs, and rear-seat screens and DVD players to keep children amused on long journeys. ‘People are very interested in having a good choice of entertainment and audio systems in the car, and the choice some car makers offer is fairly limited. So some customers would be prepared to spend their extras budget on those.’
For all these dilemmas, the industry knows it will have to act sooner rather than later. When it sees third-party suppliers producing boxes that consumers can simply fit to their car, whatever its make or model, its collective hackles rise. That means their consumers are spending money, but not with them – something the average automotive executive cannot abide.
Sidebar: A tale of in-car telematics
The car industry’s softly-softly approach to telematics is understandable – it has already had its fingers burnt once.
Last year Ford had the unhappy task of writing off more than $100m (£65m) it had invested in Wingcast, a joint-venture company set up in the heady days of the dotcom boom in which the car giant owned an 85 per cent stake. Wingcast was supposed to provide in-vehicle communications to the majority of Ford’s models worldwide by 2004. The money the car maker poured into the venture while it waited for telematics to take root proved unsustainable, and the company pulled the plug on its attempts to create a proprietary system.
OnStar, a subsidiary of General Motors, is still around, attempting to crack the market via mobile phone and GPS tracking technology embedded in the car. But despite OnStar’s claims of pleasing subscriber numbers, doubts have been raised over its long-term viability.
As an arms-length operation it is under no obligation to reveal details of its financial status or levels of customer renewal. Some have pointed to this reluctance as evidence that drivers see little value in an integrated telematics system that bears no relationship to the communications technologies they use outside the car.
Manufacturers may have no choice but to throw in their lot with the wider world of software, communications electronics and telecoms.
Sidebar: Technologies soon to become standard
Children could soon be kept amused for entire journeys with their favourite film or video game. Advances in LCD and plasma flat screens mean fitting TVs and DVD players into cars is becoming increasingly simple. A number of companies, including Pioneer, JVC, Alpine and Delphi, have developed screens that can be fitted to the back of the front seat headrests, with some systems offering surround sound and separate units to allow each passenger to watch a different film.
The choice of audio systems offered by car makers is currently limited to a CD player or six-disc changer in the boot, but this is all about to change. Technologies such as Digital Audio Broadcasting (DAB), satellite radio and MP3 technology are being introduced to the range of car stereo systems provided by electronics specialists, offering high-quality sound and a wider choice of music. Consumers will also be given the chance to personalise their car radios, by downloading and storing images to a screen on the stereo’s fascia.
Telematics is based on the convergence of radio communications and GPS technology with computing power, and allows drivers access to wireless information and entertainment. They can access personalised services such as music, the latest news, stocks, weather and sports, as well as navigation and traffic information. The technology will also offer access to e-mail and the internet while on the move, and provide location-based roadside assistance and automatic calls to the emergency services after an accident.
With increasing amounts of information available to the driver, and many instruments such as temperature gauges becoming largely unnecessary, car makers are experimenting with new ways of presenting these details. The dashboard will increasingly become a central flat screen, housing all the car’s instrumentation, as well as information and entertainment systems. Drivers will access the information and services using touch-screen and speech-recognition technology. Car companies are also investigating the use of head-up displays similar to those used by aircraft pilots, to present information such as news and stock market reports while the driver is stuck in traffic jams.
Satellite navigation systems are already being offered as an extra on many premium cars, and the devices are likely to spread to the volume market as the cost of GPS technology is steadily reduced. The devices use CD-Rom or DVD digital maps combined with GPS location information to quickly calculate a route, and can create detours to avoid traffic jams and roadworks.