Diagnostics/Prognostics – The Future of Telematics

Diagnostics/Prognostics – The Future of Telematics

We all have experienced the frustration of having Joe the Mechanic tell us that our car can’t be fixed and it’s time to buy a new one. We wanted to know this important information earlier to avoid this unexpected repair? We all appreciate an accurate diagnosis and and a timely solution. An accurate estimation of the useful-life of an important asset is always difficult to come by!

The future of telematics is that this evolving technology can help us predict the future, or at least anticipate and fix critical vehicle problems. This is often called prognostics, a term related to diagnostics, but having the sense of anticipating and avoiding costly maintenance largely a warranty cost. “Estimates of global spend on warranty claims run between $45 billion and $50 billion. In the United States, automotive manufacturers and their suppliers spent almost $13 billion on warranty claims in 2006”, according to Warranty Week Magazine . Many in the automotive industry called the challenge of dealing with warranty, climbing the “warranty mountain”.

There is growing interest these days in telematics, the application of telecommunication and computing technology to vehicles. But it is unclear as to the business model and who will truly benefit from the application of wireless to vehicles. There are countless wireless technologies to consider: cellular, WiFi, WiMAx and now Dedicated Short Range Communications (DSRC), a new WiFi like wireless (802.11p) targeted for safety and mobility applications. Who will pay and why will we pay for the required on-board warless hardware? Some automotive OEMs, such as Ford have decided that there will be no built in telematics hardware in their cars. Rather, the customer’s cell phone and carrier (of their choice) are all that are needed to connect the customer to a wealth of new features and services – infotainment and safety. In the safety arena, Ford allows your phone to place automatically emergency calls, called “911 assist”. Upon airbag deployment, the system will wait 10 seconds before it automatically calls the local 911 emergency operator. A pre-recorded message will then play when the call is answered, and occupants in the vehicle will be able to communicate directly with the 911 operator. Later this year, SYNC will offer Vehicle Health Report functionality as well. The USDOT SAFE21 initiative is an exploration of this model for key mobility information (see the August/September ITS International magazine for an in-depth analysis). What happened to the business model of a Telematics subscription charge for these safety related service. Ford is offering these services as significant cost avoidance for the consumer? Watch out Onstar for others to follow this model, offering free services, possibly in exchange for vehicle sales and brand loyalty. Traffic information remains as a Telematics related service the consumer might be willing to pay for? A very tenuous business model indeed!

Is there a compelling reason to build in telematics into every vehicle? Telematics system is the wireless radio, GPS, antennas and interface to the vehicle network to obtain key vehicle data? This blogger thinks yes and will provide a rationale based on Customer Relationship Management (CRM).

As strarting point, the luxury brands highly value the retention and on-going relationship with their customers, which are commonly called CRM is a key element of the luxury brand experience and an area where Telematics technology can be applied successfully:

  • To extend the relationship beyond the purchase of the vehicle, as a new revenue opportunity, a way to continually in contact with the customer
  • To collect and assess data about customer needs and wants to drive future product plans by understanding these leading indicators as to warranty issues
  • To be a means to timely address these issues and inform customers of appropriate actions
  • To retain customers (repeat purchases within a brand)!!!

What is the value of retaining customers to the vehicle manufacturers? According to J. D. Powers, customer retention or repeat purchases within a brand leader was Toyota in 2006 at about 65% (industry average at about 50%). Manufacturers who fall significantly below the industry average must uses marketing and sales incentives as means to gain “conquest sales”. The authors suspect that these marketing costs are not factored into the business model as the value of telematics-enabled CRM as cost avoidance through retention of customers. We now have the means to anticipate and satisfy urgent customer needs and wants. Joe the Mechanic has been replaced with off-board services – the real-time streaming of data (remote sensing) combined with model-based analysis (based on proven predictive algorithms). Savvy OEMs and fleet operators are benefiting from this capability and from this new business model – build in wireless capability to retain customers and save warranty costs.

Remember the “warranty mountain”, the $50 billion industry problem? We are suggesting that the "customer" of built-in telematics is essentially the vehicle manufacturers with a business model of reducing a significant warranty overhead. Feet operators were the first to recognize the benefit of telematics and the business model based on reducing their operating cost “mountain”. These fleet telematics applications are termed Mobile Resource Management, a $2.5 billion business globally according to C.J. Driscoll Partners, a leading consulting company for the MRM industry. The MRM business model is based on the reduced operating costs of fleet assets. Market penetration is estimated at 15% of fleets with annual growth 20-25% according to C. J. Driscoll. The growth of wireless networks and low cost hardware is accelerating market penetration. Luxury brands will add to this fleet business model by quantifying the value of customer retention and loyalty. Another significant value of warranty avoidance is the retention of customers. Luxury brands recognize that the unfortunate souls we periodically see broken down on our highways are customers lost for ever!! Fortunately today, low cost of wireless technology and the pervasiveness of wireless networks allow the vehiel amnufacturers to apply this new business model to potentially every the car!

How is this vision for CRM implemented? Telcordia and others have learned from highly instrumented fleet deployments such as the Ford Hydrogen vehicle fleet now on Michigan roads. An important enabler of prognostics is the data mining of a wealth of vehicle data and the validated predictive models to determine potential failure or useful-life. Telematics service providers such as Cross Country/ATX view prognostics as a natural extension to their roadside business. Onstar today provides diagnostics reports to their customers, but GM benefits from the reduced warranty costs. As another example, Hughes Telematics acquired Network Car as a means to obtain this important capability and to provide diagnostics/prognostic service to their new customers, Chrysler and Daimler.

Benefits of D&P to OEMs include:
1. Warranty cost reduction
2. Customer relationship management
3. Next generation vehicle design

When an OEM introduces a new model line it must anticipate covering the warranty cost associated with design and manufacturing faults. The warranty costs will vary widely from model to model and year to year, but the overall automotive industry average is between $750 and $1,000 per vehicle. This clearly shows that anything that can reduce warranty costs can have a huge impact on OEM profitability.

Faults that lead to warranty claims do not manifest themselves immediately when the vehicles enter the market. Faults are detected by owners and service personnel over the lifetime of the vehicles. The very Telematics technology we have been using to support vehicle development can be used by OEMs to find faults faster so they can be fixed faster leading to fewer vehicles in the market with these faults. This leads to not only to lower warranty costs but also increased sales through higher customer perception of quality, improved customer experience, and stronger customer loyalty.

Joe the Mechanic your days are numbered!! Today, we can acquire a large amount of relevant sensor data from the highly networked vehicles (thank you CAN vehicle networks), low cost embedded wireless, pervasive networks and back-end data-mining and predictive algorithms. The complex new active safety systems to be introduced form 2010-2015 will demand this level of diagnosis and prognosis if we are to continue our quest for improved quality. Every car will need built-in wireless capability.

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