Telematics: Does cradle to grave service spell the end of choice for consumers?

The future of telematics is one of the most important issues facing the aftermarket today, but it's been largely ignored. This suggests that it might be time for the aftermarket to take notice before it finds one foot in the grave.

It's well known that some drivers form a tight bond with the vehicles they drive. With telematics, the motorist can communicate with the car, and the car can "talk back," defining an evolution in this relationship.

The biggest question right now is: How can aftermarket manufacturers and repairers compete with products that create a captive OEM customer? As this industry struggles to find its footing and answer this question, the clock's ticking on rapid advancements in telematics, which are becoming more sophisticated by the day.

Whether aftermarket manufacturers get in on remote diagnostics and vital safety features or specialize in navigation and entertainment items (or both) are still up for discussion and in the hands of the driving public's needs.

In order to compete with the likes of OnStar, which is perhaps the poster child for telematics, the aftermarket needs to form a unified front. Especially now that GM has announced that it has made OnStar standard on all of its 2008 models.

In fact, the answer to competing with the OEM products out there may be in organizing efforts at the association level with an unprecedented effort of collaboration, say some we spoke with.

What might seem like a segment in which the OEMs have a leg up also can be a plus for the aftermarket, says investment banking firm BB&T Capital Markets, which mentions telematics in its post-AAPEX roundup issued late last year. This is a bit of good news for the industry.

"Developments in telematics could be a huge windfall to the aftermarket if the sector is able to integrate itself with the information flow," the report states. "But if independent installers are unable to act together and are slow to capitalize on the change in trends, telematics could precipitate an even greater shift back to the OE dealer network."

"Fortunately for the automotive aftermarket, information systems built on proprietary technology have proven to be a failure in the marketplace in the long run," he says.

He adds that manufacturers like Garmin (maker of portable navigation units) eventually are going to be able to offer a much wider array of in-car services than OEMs.

By 2013, global growth consulting company Frost & Sullivan predicts an almost 10 percent increase in telematics units sold, bringing the number to nearly 6 million, which would yield about $820 million in revenue. Subscribers to telematics services are expected to increase 14.4 percent to 14 million people by 2013, Frost & Sullivan adds.

Getting in-synch with customers

OnStar has been around for some time, but other carmakers are rolling out systems that cater to the driver's need for connection and entertainment.

Ford's partnership with Microsoft to develop SYNC is a topic of much telematics discussion. SYNC integrates a vehicle's entertainment system with other systems like cell phones and portable music players to provide hands-free operation for the user.

This entertainment fulfillment also is seen in the aftermarket. Provider US Telematics, Inc. has its sights set on the "wired car," enveloping the vehicle with music, movies, television, Internet, e-mail, digital audio books and other interactive features that travel to and from the vehicle. The company's Voyager line recently added Apple iTunes compatibility. The product line is the first to offer live Internet protocol (IPTV) for passenger vehicles, according to US Telematics.

Major technology providers like Apple will appear more and more in the automotive industry's releases. One example is the announcement of Microsoft joining forces with Siemens VDO to implement the cobranded technology in as early as 2009 models.

Technology, the crux of telematics development, could actually put a stick in the spokes of automakers, presenting a downside to the OEMs' seeming lock on remote diagnostics. Many reports are critical of the vehicle makers' longer product cycles, which could potentially make some electronics products obsolete before the car rolls off the show floor.

A Frost & Sullivan news release points out that product cycles for consumer electronics are measured in months, whereas an automobile typically takes three to eight years to go from concept to finished product. "As a result, there is a very high probability that an electronic gadget designed into the car will become obsolete even before the car reaches the production line," the release states, adding another problem with advanced technology is certain systems work fine in isolation but can cause conflicts when integrated with other systems.

The technology du jour, or means of this communication, appears to be Bluetooth. But it has some inherent problems that will need to be ironed out for the products to keep pace with changing technology standards.

Within 18 months, Bluetooth underwent three different iterations. Who decides which Bluetooth standard is the universal automobile standard? Other research shows that a number of Bluetooth-equipped phones cannot connect to automotive systems.

Standards issues notwithstanding, the Bluetooth car kit market is expected to grow at an annual rate of 27 percent, reaching $1 billion in 2013, according to Frost & Sullivan.

It's about more than technology

To get a handle on the telematics industry, businesses should look beyond the mere technology involved, says Gary Abusamra, director of engineering and quality for Delphi Product and Service Solutions.

"It's a bigger business model issue than it is a technology issue," he says.

While the technology behind telematics is vital, what's more important is getting the system into drivers' hands. A company can have the most impressive product with all the bells and whistles one can ask for with an electronics device, but the product will collect dust on the shelves if the innovation can't be backed up with a solid business plan.

All of the doom and gloom aside, there are plenty of telematics growth opportunities in the aftermarket. Selling tracking software to companies with fleets can build solid customers.

Another area in which the aftermarket may experience some success is with portable navigation. As more and more drivers make the foray into in-vehicle infotainment, more opportunities develop.

A recent J.D. Power and Associates report underlines the current popularity of portable navigation units, but it also reveals that the reseller network may not be prepared for this and other new technologies.

The study is defined by an extremely high number of problems, with two-thirds of the 4,000 consumers surveyed reporting problems, the most prevalent of which are route accuracy and system mounting. Highest levels of satisfaction were reported with appearance and voice directions, while system speed garnered the lowest satisfaction ratings, the firm reports. About 25 percent of owners surveyed say they want iPod compatibility, and 26 percent were interested in camera integration. But these two categories have the largest gap between supply and demand, J.D. Power adds.

But the high number of complaints points to more overall usage and a demographic that's using some of these products for the first time, says Mike Marshall, director of automotive emerging technologies for J.D. Power. The more a consumer uses a product, the higher the likely incidences of problems, he adds.

Says Marshall: "One of the biggest surprises is the percentage of repurchase of the same make is very high. Ninety percent of these owners, even though they have problems with it, are happy enough that they go back to the same make."

Another finding of the J.D Power study that should concern the aftermarket is the lack of product knowledge at the counter. Drivers who contacted the manufacturer directly were much more satisfied than those who returned the navigation device to the retail outlet, says Marshall. Additionally, owners who shopped online reported a better experience than those who went to a brick and mortar store, according to a news release.

Marshall clarifies that this goes beyond an aftermarket problem. "The problem goes to the dealership at the OE level, too," he adds. "The large part of the onus is on the manufacturer to best equip the sales personnel with the product knowledge to better promote their product."

Abusamra attributes the popularity of portable navigation to the drop in prices of navigation devices. He points out other trends to look for as they pertain to telematics, like automatic 911 dialing, as well as "e-calling."

With its close ties to GM, Delphi is in the position of benefiting from both OEM and aftermarket business. The manufacturer has the vantage point of figuring out the aftermarket trends while they're still part of the new vehicle market. "We are talking with various customers in the aftermarket to help understand this business model question, and we're going to continue to look for the business model that works well in the aftermarket," says Abusamra.

Those we spoke with say telematics will move along as the result of necessity. "The first generation of telematics was driven by safety features," says Abusamra. "As capability of electronics and bandwidth goes up, the ability to deliver real-time content to the vehicle will bring another wave of customers."

It's vital that the aftermarket create a "value equation," say those involved with this segment. The customer will then decide whether this value transcends to spending money.

Beyond the products themselves, using the airwaves to transmit this communication also costs money. And OEMs have an advantage because they purchase cellular peak loads at a much lower rate than the aftermarket can.

"An individual aftermarket component manufacturer would face much higher cost issues," says Marshall.

For now, the telematics aftermarket is highly fragmented; to be successful, especially in the realm of remote diagnostics, the aftermarket will need a level of collaboration it's perhaps never seen. Survival very well might depend upon it.