Connected services: Do they sell cars?

Connected services: Do they sell cars?

How is this for a conundrum? More and more drivers are expecting connected services, yet there is little evidence to suggest that these services are becoming a major selling point for new cars.

This leaves car manufacturers in a strange kind of purgatory with car connectivity in the process of making an almost instantaneous leap “from extra to expected,” as the technology consulting firm Capgemini put it, yet customers being unwilling to pay for it.

“Does connectivity sell cars on its own, individually? Probably not,” says Mark Boyadjis, senior analyst, North American automotive research, IHS iSuppli. “It’s not going to sell the car, but it might make the sale when all else is equal. There’s hardly a car out there that doesn’t offer Bluetooth in some package level, so if the car doesn’t offer it, it might not be on the buying list anymore.”

Price resistance around $500

If buyers of new cars are willing to pay up at all, they want to do so as a lump-sum of about $500 at the point of purchase.

“When you bill much higher than $500 or start putting in a monthly fee, you see interest in those kinds of models plummet,” says Chris Schreiner, research director for Strategy Analytics. “People don’t want the embedded modem if they’re going to have to pay for it. They’ll just do what they do now, hold their phones in their hands. They’re not going to pay an extra $20 a month to have that on a bigger screen.”

This price resistance is supported by a study by Gartner that found  just 24% would pay more than $1,000, according to Thilo Koslowski, Gartner group vice president and lead automotive analyst. The rest, according to Gartner, want to pay less than $1,000.

Low to mid-range cars

Interestingly enough, telematics is far more likely to have an impact on sales of low- to mid-range cars than of luxury vehicles. 

According to Boyadjis, a longtime BMW owner is unlikely to switch to a Mercedes even if the Mercedes has a better connectivity system. “There’s a lot less to differentiate a mid-size sedan and much less brand loyalty,” he says. “A Camry, an Accord, a Fusion, a Malibu, they’re basically the same car. That’s where the connectivity can really sell the vehicle.”

It is no surprise that tech-savvy younger people are some of the most discerning customers, particularly of some sort of interactivity between their cell phones and their vehicles. But it would be a mistake to dismiss older people, who, after all, account for most new car sales.

Strategy Analytics found that more than half of drivers aged 55 to 64 said they are “interested” in in-car technology that provides traffic and weather information, as well as help finding gas stations. 

Consistency across age groups

In fact, what drivers want from their connected cars is remarkably consistent across age groups, genders and even nationalities. In survey after survey, respondents say they want “driving support” in the form of navigation assistance and emergency help.

Strategy Analytics found 68% of U.S. respondents were interested in real-time traffic information, 63% were interested in local fuel prices and 51% in finding available parking spaces. Capgemini found 78% viewed safety-related features important and 71% viewed an enhanced driving experience desirable from telematics.

“It’s very clear in all the data we’ve ever collected that they want services that are driving-related,” Schreiner says. “They’re saying, ‘Help me get from point A to point B, stream my music, give me real-time traffic and weather.’ If I throw in social networking, they laugh at me. They don’t see the need. ‘I can wait a half-hour to send my Facebook feed.’”

John Bagazinski, a senior manager at Capgemini, found a similar response. “We asked about gaming, but people can already do that on their phones,” he says. “They don’t want their car to necessarily do that. They like to plug the phone in, but they don’t want Twitter feeds showing up in the dashboard.”

Screens to stream video for rear-seat passengers were also not a high priority. “The demographic that has kids of the age … and isn't bringing their own tablets is not as profitable,” Schreiner says. “Give me the functionality, and I’ll work around it.” 

(For more on customer willingness to buy telematics, see BRICs: Wide open to telematics, part I and BRICs: Wide open to telematics, part II.) 

Dealers as a bottleneck

One reason telematics hasn’t become a significant motivating factor might be that dealers haven’t emphasized it much in advertisements or sales pitches. Dealers frequently shy away partly because the complex systems inevitably result in troubleshooting that their service and customer service personnel are ill-equipped to do.  

A car owner struggling to make his smartphone interact with the dashboard, for instance, will expect dealers to make it work. “There’s that kind of disconnect between the dealers and OEMs where dealers are not happy about having these advanced features especially when they don’t work very well,” Schreiner says. “When they don’t work, and consumers are dissatisfied, they’re going to go to the dealers to complain.” 

(For more on this, see The new dealers: Selling telematics to car dealers.)

That said, some survey data also bodes well for dealers, if they can stay in the loop after the sale. An impressive 75% of respondents want a connected car that gives them service reminders and 81% want one that will “monitor condition of parts and give automated warnings,” Capgemini found.

Given that dealers make a large part of their profits in the service bay, connected cars provide the ability to strengthen and maintain the relationship between the car owner and the dealership, too.

Still, Schreiner is skeptical, mostly because the technology deployed so far has been clunky and glitchy.“Consumers are just increasingly expecting everything, and they expect it to work,” he says. “Once the experience gets better, you’ll see an uptick in usage. But that’s if the OEMs get around to designing things that are a little more usable. It’s just a big if.”

Steve Friess is a contributor to TU. 

For all the latest telematics trends, check out Telematics Japan/China 2013 on Oct. 8-10 in Tokyo, Telematics Munich 2013 on Nov. 11-12 in Munich, Germany, Telematics for Fleet Management USA 2013 on Nov. 20-21 in Atlanta, Georgia, Content and Apps for Automotive USA 2013 on Dec. 11-12 in San Francisco, Consumer Telematics Show 2014 on Jan. 6, 2014, in Las Vegas.

For exclusive telematics business analysis and insight, check out TU’s reports: Telematics Connectivity Strategies Report 2013The Automotive HMI Report 2013Insurance Telematics Report 2013 and Fleet & Asset Management Report 2012.

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