How OEMs can Reap the Benefits of VRD

How OEMs can Reap the Benefits of VRD

The capability of car-makers to factory-equip their new vehicles with connectivity and, as a consequence, collect data about every aspect of the car – such as how and where it is driven and the health of its various parts – offers a multitude of potential benefits for OEMs.

Perhaps most important, it offers them the opportunity to boost their bottom line. At the Telematics Munich 2013 conference, Roger Lanctot, associate director at Strategy Analytics, suggested just how much car-makers were losing in potential revenues by not taking advantage of this opportunity.

In the United States, he said, “70 percent of the profit from the vehicle leaves the lot.” This amounted to $60 billion in deferred maintenance and $40 billion dollars in collision aftercare a year, or an estimated $100 billion in total lost revenues, he said.

Almost all players in the connected car ecosystem believe that the best way to keep that ROI on the OEM’s account books is through the use of vehicle remote diagnostics.

That is the primary reason many car-makers are, as Andrew Hart, head of the Advanced Research Division at SBD, says, “refocusing their connectivity strategy around remote diagnostics.”

Hart maintains that VRD is the “underlying reason” most car-makers now want all their cars to be connected by 2018–2019. In the meantime, the service is being bundled with other offers to entice customers to sign on.  

Hart cites the example of German luxury car-maker BMW, which has started offering its proprietary eCall service in the United States free of charge for 10 years – effectively, for the lifetime of the car – in conjunction with its TeleServices service, which provides over-the-air data about the condition of the vehicle to a BMW service partner.

The key phrase in this offer is service partner. With free eCall as part of its attraction, BMW is ensuring that if the vehicle has an accident or a malfunction, the repair will be performed within its own dealer network.

“And if the customer stops subscribing, the car manufacturer can continue to extract remote diagnostics data for the life of the vehicle,” Hart says. “That shows you the importance of remote diagnostics to a manufacturer.”

For more on the role of data in the car, take a look at Telematics Update’s special report on Telematics and the role of data

VRD as a CMR Tool

Hart says BMW was ahead of its time in recognizing the importance of vehicle-generated Big Data.  “The company had an early vision; they saw value of data before anyone else did,” he explains. “And that value concerned their customers. They decided that if you are a BMW driver, you should not spend a lot of time waiting for your car to be fixed. They have been trying to minimize that time to almost zero.”

That is because the entire process – from sending a maintenance alert to the driver to making an appointment to have the part replaced or repaired and making sure the part is in stock – takes place over the air.

“That’s one reason they have such tremendous brand loyalty,” Hart says.

“Theoretically, remote diagnostics should help produce a much more amenable relationship between car-maker and customer,” says Richard Wallace, director of Transportation Systems Analysis at the Center for Automotive Research (CAR).  “Customers want to avoid major problems with their vehicles. If remote diagnostics helps prevent major maintenance issues, that would just increase brand loyalty.”

According to Dave McNamara, president of MTS LLC consultancy, VRD’s great advantage lies in prognostics: it helps car-makers “know in advance how things are going to fail. And prognostics benefits the OEM with customer loyalty and lower warranty costs.”

And it benefits the customer by helping prevent major maintenance and long vehicle downtime.

Remote Diagnostics for R&D

Hart calls remote diagnostics “absolutely vital” to a car-maker’s research and development program. In addition to identifying a problem and then reprogramming the car remotely to deal with the issue, “it can help designers develop a better product next time,” he says.

In addition, remote diagnostics provides information to the OEM about how the car is used. “We [at SBD] still get asked by our customers, ‘Should we stop putting CDs in our cars.’ That’s a ridiculous question. They should know this. Car-generated data provides that information.”

This enables designers  to ‘de-spec’ their cars by revealing what  to show what features are superfluous, Hart says. ”This will free up bandwidth and space for more important features and services. It also reduces the cost of components.”

McNamara says getting data from hundreds of thousands of cars can provide learning for new vehicle development. It also helps car-makers understand their car’s power train system and track its emissions, he notes, declaring: “If you want to understand the car, you have to get into the bowels of the network.”

Wallace agrees, saying: “These massive amounts of data help you make tweaks to design before you roll the car off the assembly line.” Big Data can be used on the manufacturing floor, during production, as well as on the car when it is off-road, he says.

Remote Diagnostics in the Future

Wallace suggests that in the future car-generated data can include data about the infrastructure.

“For example, vehicle-based cameras can be used to detect infrastructural problems,” he says, describing a kind of remote diagnostics systems for roads. “If you drive a road frequently, it would be in your interest to inform the infrastructure provider about the problems.”

Another strong possible benefit from remote diagnostics is in sales, says SBD’s Andrew Hart. “By extracting data from their cars, manufacturers know how the customer uses the car,” he explains. That information can include, for example, how many people use the car, how long the average trip is and where that car is driven.

“This can help the manufacturer identify their customer and tailor the sales message next time,” he explains. If, for example, the customer takes many long trips, the sales message could emphasize the comfort of the ride. Or if the driver often uses the navigator, the sales pitch would conceivably highlight the state-of-the-art navigation system.

Hart says many OEMs are already using VRD for prognostics and a few, such as BMW, are incorporating it in their design, but no car-maker has yet used it for their sales. But that is just a matter of time.

For more on CRM take a look at Telematics, CRM and a very long-tailed proposition

Why OEMs Hesitate

However, while most OEMs do “get it” about remote diagnostics, many still hesitate to take the plunge, especially in the United States. One reason, says Hart, is that it is “organizationally hard to implement.”

Individual teams within OEMs are insular, he explains, and it is often difficult to have them cooperate for the common good that remote diagnostics can provide.

According McNamara, “remote diagnostics is an overhead.” He says all U.S. car-makers are wondering how they can use the feature, and how to deal with the cost of warehousing and analyzing all that data.

“You’ve got to have the back-end system to support the analytics of the remote diagnostic system,” he says.

And then there is the problem of overcoming customer resistance. Wallace warns that “there is a very fine line regarding privacy. You have to be careful about going over the top with the Big Brother issue.”

He says General Motors encountered negative publicity when a court ordered the company to stop collecting car-generated data after customers had stopped their OnStar subscriptions.

“Jim Farley of Ford said that Ford does the same thing,” Wallace recalls. “He said, ‘We’re tracking people all the time.’ “

In gathering car-generated data, it is important to be aware of the customer’s comfort level, Wallace says. “Remote diagnostics is a great opportunity for CRM, but you have to be careful not to chase your customer away,” he counsels.

According to Hart, there is another issue with “selling” remote diagnostics. “It’s hard to sell safety equipment because of the negative feelings it evokes,” he explains. “With remote diagnostics you are telling the customer, ‘Your car could break down. It is bad news.”

As McNamara puts it: “I have never in my entire career had someone say to me, ‘Thanks for doing such a good job with diagnostics’.”

 One way of overcoming customer resistance is to combine remote diagnostics in a value-added package with other, more desirable services, as BMW is doing.

“You bundle it with other benefits, such as real-time traffic information, location-based services, discounts for restaurants,” Wallace says.

The key is value, he insists.  “The service has to be perceived as value, as good value and worthwhile.”

For all the latest telematics trends, check out Telematics Brazil & LATAM 2014 on September 24-25, Sao Paulo, Brazil, Telematics West Coast 2014 on October 30-31 in San Diego, USA, Telematics Munich 2014 on November 10-11 in Munich, Germany, Connected Fleets USA on November 20-21 in Atlanta, USA and Consumer Telematics Show 2015, January 5 in Las Vegas.  

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