Despite its economic downturn, Brazil offers telematics opportunities

Driving your car, listening to your music playlist and make a reservation at your favourite restaurant to meet your friends all at the same time. To many Brazilians, this is the definition of paradise.  And they are closer to achieving that than they think.

Brazil is home to the seventh largest auto market, where over 2.5M cars are sold every year. At the same time, there are more cell phones than people living here. Brazilians are heavy users of Internet services and known for loving social media. Developing and selling telematics and infotainment services seems to be a win-win situation. And automakers, equipment and software developers are aware of that.

They are unanimous when they make forecasts: they say all models, of every brand, will leave the factory with some installed device in up to three years. Or at least have it as optional equipment. Today, about 40% of new cars leave the dealerships with some sort of connectivity, half of which with a display of at least 5-ins.

“One can’t sell a car in Brazil today without a multimedia system,” says Volkswagen do Brasil product engineer Marcus Sousa.

“It has become a must, not an accessory,” adds Marcio Luz, solutions manager at Volvo and Wireless Car. “Brazilians adore cars, technology and innovation.”

4G Phones

To David Borges, Ford’s connectivity and engineering supervisor in Brazil, these changes initiated with the increasing access to phone technologies with data services. “Selling a vehicle without a simple, fun and safe interface with such technology would make us less competitive.” For him, it attracts more and more customers to the brand every day.

Sales of smartphones rose 55% in Brazil last year, to 54.5M, according to consulting company IDC Brasil. While purchases of tablets and PCs should decline again in 2015, after a 26% drop last year, the smartphone market is expected to grow by another 16%. A third of the gadgets will have 4G connections.

“We can transform the time the driver spends in the traffic into something more productive and a way of doing that is by enhancing the integration of the car to the smartphone and to the driver,” says Samuel Russell, director of marketing at General Motors (GM) in Brazil.

In large cities such as Sao Paulo and Rio de Janeiro, home to notorious traffic jams, making the best of your time in stop-and-go traffic can save you money and stress. Congestion in Sao Paulo set a record at 7pm in May last year, when 344 kilometers of traffic was at a standstill, according to the state's Traffic Department.  Dutch company TomTom said in a report this year Rio is the city with the third worst traffic in the world, behind only Istanbul and Mexico City.

Compact cars

It’s not a matter of auto segment – and price. Volkswagen released in June a new version of its Fox compact car with an infotainment system. The strategy, they say, is to democratize the technology and make sure it is noticed.  GM and Ford are also releasing telematics services in compact, more affordable cars. The three automakers are, together with Fiat Chrysler, the four largest in the country and hold a 60% stake of vehicle sales. There are 18 companies making cars and light commercial vehicles in Brazil today.

“This is a global trend and it’s gaining speed in Brazil,” says Flavio Sakai, sales and marketing director at Harman. “The technology gap between Brazil and other more advanced countries is narrowing fast and is of one generation now. Consumers want it, and automakers are giving them.”

The next step is the service end, which will develop naturally as more vehicles get to the streets fully equipped, Sakai says. Harman spent $1Bn (£649M) this year buying connected car firms abroad and has recently built a new plant in Brazil to produce infotainment and telematics-related products. Operations begin in August with 200 employees.

Most platforms available in the Brazilian market today are mirroring infotainment systems. The next generation, that are already in the streets, allows cars to talk to the smartphone and offer services as safety and emergency functions, automatic collision response, vehicle tracking, weather forecasts, maps and customer relationships.  

These services are already available in the premium segment. BMW, Volvo and Mercedes-Benz sell cars with embarked systems. Consumers pay for those as the price is embedded in the value of the car and this is the top end of the consumer chain.

Prices and costs

“There is a high development potential for infotainment and telematics in Brazil owing to the profile of the Brazilian,” says Volvo and Wireless Car’s Luz.  “The downside is the mentality behind paying for the services,” he adds.

The success of automakers in the mass segment relies on offering those services with no extra costs through the connection with mobile phones. Consumers will pay for telematics services once they realise they are getting the functionality they want and it is making their lives easier.

People don’t want to pay another phone bill for their cars, especially in a country where phone rates and Internet connections are high. A phone call in Brazil is costlier than in any European country and even African nations. But by connecting cars to the smartphones in a safe system, consumers will see the value and start using them, the automakers executives believe.

Shrinking economy

Adding attractive devices to a product desired by so many may even become another tool for automakers to divert sales in a dwindling market. Vehicles sales have dropped 18% in Brazil in the first seven months of the year, compared to the same period a year earlier.  

Economists estimate Brazil’s gross domestic product will shrink by 1.5% this year as the economy struggles with rising unemployment, increasing borrowing costs, a weakening exchange rate and growing inflation. GDP should grow a mere 0.5% in 2016.

“Moments of crisis emphasize the need for changes and new ideas and concepts emerge,” Ford’s Borges says. “Investing in those ideas could be a watershed and may help us minor the effects of the crisis.” 

Extra revenue

As revenues fall month after month, telematics shimmers as an extra source of income or expense reduction to automakers. Although not the main driver of investment in connectivity departments, companies may sell so called soft products customised to the specific needs of its consumers.

“Products and services related to the connected cars will make a difference and can become a key factor when choosing between car A and B,” says Luz. “Technology is not the core of the product but it adds value and increases performance.”

It could also help automakers cut non-recurring operating expenses. As cars in the streets are connected to automakers real-time systems, they tend to be more up-to-date, carry fewer issues, and prevent consumers from having to go to a dealership for repairs all the time and allowing companies to better manage its maintenance infrastructure.

“For automakers, telematics services could improve customer relationships, help automakers fully understand their clients’ needs, and letting them offer new services such as diagnosis and advertisement,” says Sousa, from Volkswagen.  “It’s more than money. But automakers could certainly use it as a revenue source.”

Connected Buses

Buses could be another frontier for telematics services sales. Brazil’s urban transportation is based on buses more than trains and, as more people buy cars, traffic has become an issue in many cities.

Sao Paulo, the country’s largest, is running a public bidding for companies to run its bus transportation system for the next 20 years. The infrastructure will demand more than 3,000 buses that should be connected real time with a controlling system of the Transportation Department. The goal is to monitor traffic, buses performance and whether companies are fulfilling its contracts. Buses makers will have to adapt so they can supply those vehicles.

“They will all have to offer some solution to the market,” according to Luz.  “At the same time, the existent fleet will be adapted and companies will retrofit them, opening room for more sales.”

You can get up to speed with all the latest developments at Telematics Brazil & LATAM, Sao Paulo, this October 19-20.

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