Telematics in Brazil: 4 ways into the infotainment market

James

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15th October 2012

In the US and Europe, dealers sell the cars they receive from OEMs. In Brazil, they soup them up—with new cockpits, new DVD players, new subwoofers and satellite TVs.

In local parlance, it’s called “tuning.” Customers go in, see a car they like, and then, if they’re so inclined, tune it with the aftermarket infotainment options the dealer, and not the OEM, supplies.

“In Brazil, car manufactures make money from the car,” says Ricardo Takahira, new business manager for the electronic division at Magneti Marelli. “Dealers make money from add-ons.”

The add-ons—stereos, navigation solutions, built-in TVs—generally come from China and are cheap knock-off versions of what you might find in developed markets, though Takahira says the quality is starting to rival products manufactured elsewhere.

The government has tried to limit the implementation of DVDs and satellite TVs in particular, but as the Brazilians say, “a lei não pegou”—the law did not take hold. Aftermarket DVDs and satellite TVs continue to thrive.

Challenges for the embedded market

As a result, the infotainment proposition in Brazil is a peculiar one for tier 1s and OEMs. Aftermarket solutions are cheaper than embedded solutions and more customizable, making it a questionable endeavor to embed infotainment offerings before cars arrive on dealers’ lots.

“The embedded infotainment market is impaired and impeded by the fact that dealers derive so much revenue opportunity from the aftermarket,” says Roger Lanctot, director of business development at Strategy Analytics.

There are other deterrents as well. For one, taxes are notoriously high in Brazil, both on imported and locally manufactured cars. “If you add in an infotainment system, the taxes are overdose,” says Takahira.

Secondly, the wireless networks offer far from 100 percent coverage, even in the big cities of Rio de Janeiro and Sao Paulo. “The fact that wireless networks are so poor, and drop a lot of calls and drop them frequently, doesn’t make for a rich environment for embedded systems built in by the car makers at their factories,” says Lanctot.

“If you offer connected infotainment and the customer goes somewhere where there’s no coverage, they blame the brand, they blame the product, not the wireless network,” says Takahira. “So it’s too risky to embed technology that’s based on the smartphone.”

Thirdly, the technology imperative in Brazil is not infotainment or even emergency response. It’s track-and-trace. Vehicle theft is a constant concern for any car or truck owner, as Rio de Janeiro boasts one of the highest vehicle theft rates in the world—19 times that of New York City—and Sao Paulo isn’t far behind. (For more on track-and-trace, see Telematics in Brazil: Security for cars and cargo, part I, Telematics in Brazil: Security for cars and cargo, part II and Telematics in Brazil: Ensuring security for cars and cargo.)

Whereas in Europe the government has pushed for mandated eCall technology, in Brazil the government has pushed for mandatory track and trace solutions by way of the Contran 245 legislation, which is supposed to take effect in 2013. “Europeans want to save people, Brazilians want to save cars,” says Lanctot, a statement that Takahira echoes. (For more on Contran 245, see Telematics in Brazil: The law of the market.)

Strategy one: Wait

All of this is great news if you’re a Chinese manufacturer making aftermarket hardware destined for Brazil. It’s bad news if you’re a tier 1 looking to break into a booming emerging market. (For more on emerging telematics markets, see Industry insight: Telematics and emerging markets.)

Some OEMs have taken a more aggressive posture and already have offerings on the market, like Fiat with its “Blue and Me” and Hondai, which offers a range of embedded solutions. But these are exceptions, not the norm.

One strategy is simply to wait. Feature phones and enhanced feature phones are currently more predominant than smartphones, but smartphone use is growing and wireless networks are improving. Meanwhile, embedded systems continue to lower in price and low-cost navigation systems continue to improve in quality, so several years down the line could be competitive with aftermarket solutions.

“This will lay the groundwork for more embedded systems,” says Lanctot, especially systems that harness smarpthones for connectivity.

Strategy two: Teach

A compelling in-vehicle infotainment solution is a three-way intersection of quality construction, pertinent information, and good entertainment, which from an engineering standpoint is challenging to pull off. A second strategy is to encourage the flow of information and industry learnings into the Brazilian market.

“We are followers; we are not inventing,” says Takahira. “Sometimes cars come with infotainment; we try to understand.” (For more on infotainment in LATAM, see Telematics in Brazil and LATAM: Going beyond GPS, Telematics in Latin America: Getting ready for infotainment and Telematics and the connected car in LATAM.)

Bringing foreign engineers in to explain would be helpful, as would sharing insights from studies and encouraging local research. “The US and Europe have researched this and continue to research it in depth,” says Takahira. “In Brazil, we have no local research bodies like NHTSA. We try to get conclusions from some studies, but there are no local studies for that.”

Strategy three: Integrate

One advantage embedded solutions have is that they can fully integrate with the vehicle. If an embedded system is part of the car’s brain, an aftermarket solution is merely a toupee. A third strategy is to leverage this integration potential to provide features that save costs and appeal to drivers and governments.

For example, one could use the infotainment system and its touchscreen as an interface for air conditioning, seats, mirror adjustment, and other functions, so you end up with a better technology solution that actually lowers costs, as you’re saving on physical parts and eliminating buttons.

“In Brazil, this is what we need to do,” says Takahiri, “because if we don’t, we’re not eliminating the need for tunings for an entry level car.”

Tier 1s and OEMs can also think about integrating safety features, like parking warning and assistance, night vision, lane departure warnings and other ADAS features as well as basic controls that make it safer to use an infotainment system while driving, which may increase the value proposition for drivers.

Strategy four: Lobby

If the government were to pass certain standards, it might require OEMs to implement solutions versus dealers adding them on their lots. A final strategy, therefore, is to pressure government to consider angles of the infotainment conversation that it currently overlooks.

Takahiri suggests that the Brazilian government is persuadable in this respect, and that companies in the telematics space can lobby for change. (For more on opportunities in the LATAM market, see Telematics opportunities in Brazil and LATAM, part I and Telematics opportunities in Brazil and LATAM, part II.)

Five years ago Magneti Marelli decided to deploy a portable navigation device to the market. The law on the books prohibited the use of images in the front seat, which was an attempt to limit in-dash DVD players and satellite TVs but also impacted a company’s ability to deploy navigation with any sort of depiction of a map.

Takahiri went to the transit authority with colleagues and convinced them that for PNDs it was important to show images—to highlight traffic, to help see upcoming turns and streets, and to be prepared to change lanes or follow roundabouts. The team presented evidence for improved safety and demonstrated the voice instructions that would accompany the images. And the government changed its policy.

“It’s definitely possible,” says Takahiri. “If we can present this technology as a way to help and improve safety, not to distract, it may be a good argument.”

Andrew Tolve is a regular contributor to TU.

For more on emerging telematics markets, see Industry insight: Telematics and emerging markets.

For more on Brazil and the LATAM market, visit Telematics Munich 2012 on October 29-30.

For all the latest telematics trends, check out Telematics for Fleet Management USA 2012 on November 13-14 in Atlanta and  Content and Apps for Automotive USA 2012 on December 4-5 in San Diego.

Coming up in 2013: V2X for Auto Safety and Mobility Europe 2013 on February 19-20 in Frankfurt, Telematics for Fleet Management Europe 2013 on March 19-20 in Amsterdam, Insurance Telematics Europe 2013 on May 8-9 in London and Telematics India and South Asia 2013 on June 5-7 in India.

For exclusive telematics business analysis and insight, check out TU’s reports: In-Vehicle Smartphone Integration Report, Human Machine Interface Technologies and Smart Vehicle Technology: The Future of Insurance Telematics.