With telematics expanding, aftermarket must develop a plan to share in its benefits

The use of automotive telematics is growing rapidly, and companies in the aftermarket need to prepare strategies to capitalize on the technology.

Last year, the Automotive Aftermarket Suppliers Association (AASA) released the results of its "Hot Topics" survey on telematics, which found that while 61 percent of respondents felt that telematics would have a positive impact on their business in the aftermarket, many of them expect to see a loss of market share for independent service providers as dealerships leverage these capabilities.

Research firm Berg Insight estimates that nearly 12 percent of all cars sold worldwide in 2013 were equipped with an OEM embedded telematics system. The attach rate for these systems in North America is currently around 30 percent. The embedded market is expected to grow 30.6 percent annually, with shipments reaching 54.5 million in 2020, and the number of subscribers reaching 158.9 million. While most of those users will only access basic safety services, the number of users accessing at least one additional telematics service will grow to roughly 112 million worldwide.

Cloud computing technology and more advanced sensors have helped enable this growth. "We now have the ability to monitor what's going on in the vehicle in real time, so that you can understand what's happening with a particular vehicle in relation to its environment and in relation to the driver behind the wheel," says Jeff Nedwick, Infor's director of automotive industry strategy. "Cloud computing has been a huge technology enabler, because you need some place to run the high-end analytics that this makes possible."

Embracing telematics will be important for companies in the aftermarket, but exactly what the business model will be still is not clear.

There is an emerging market for telematics in cars that don't currently have an embedded system. "There are lots of vehicles on the road with nothing in them as far as telematics, and that's the aftermarket channel we're focused on," says Malcolm Sissmore, North American sales director for telematics at Delphi. "We believe we can deliver a program through service centers to fleets and consumers, and in conjunction with parts distributors."

According to Nedwick, most telematics systems receive three kinds of data: business-as-usual information that the vehicle is performing as expected; information about air bag deployments or anti-lock braking systems engaging that should be acted upon immediately; and what he describes as "a whole bunch of data in the middle that is of even more interest to the broader market, and that's where aftermarket capabilities are important," he says.

That data can be used to monitor product performance, identify and fix defects, or to develop new product offerings. "You could even use the location information and data from the gas tank to set up a partnership to resell the data to third parties like gas stations or restaurants," Nedwick says. "Those are the kinds of thing that are possible now."

Connecting with customers

In the AASA survey, the majority of respondents felt that telematics would have a positive impact on the industry, but more than a quarter thought there would be a negative impact. This likely stems from fears that OEM dealerships will have an unfair advantage when it comes to drawing customers in for routine maintenance and other repairs.

Whoever is able to connect best with customers will be able to open up a dialogue that results in less deferred maintenance and a stronger connection between the vehicle owner and the repairer.

"The idea is that with more knowledge, the end consumer would be more informed about what is going on with their car, and they will be more apt to go to the dealership or service center, or to an independent shop with that connectivity," says Bailey Overman, senior analyst at the AASA. "You create touchpoints to educate consumers about the care of their vehicles."

Right now, OEMs and their dealer networks have exclusive access to this data in the case of vehicles sold with onboard telematics. A full 60 percent of respondents to the AASA survey expect a market share decline of approximately 3 percent for the independent aftermarket as the result of telematics adoption.

Whoever has the data, the future of telematics lies in the ability to apply better analytics to the more granular data being generated by the increasing number of sensors in the vehicle.

Infor is one of the companies working on the challenge of how companies can use that telematics data. "Just having a place to put the data isn't enough," says Ziad Nejmeldeen, Infor's senior vice president and chief scientist of the company's Dynamic Science Labs. "You need an analysis group to execute the analytics work to make sense of that data that is being cheaply stored."

Aftermarket efforts have so far focused on getting consumers to adopt plug-in solutions. For a consumer model to emerge, there has to be value beyond diagnostics and maintenance. "We're seeing traction for folks who want to monitor a teen driver or a senior driver, but those are limited audiences," Sissmore says. "The value creation isn't there yet from the vehicle maintenance/diagnostic-only perspective."

Lowering the cost of these solutions will be critical for success with consumers, along with support from parts suppliers. "You have to get something in the consumer's hands that is negligible from a cost perspective," Sissmore says. "Then you can monetize getting in front of customers with offerings for oil changes and things like that. That’s starting to take hold a bit, and manufacturers are starting to see where there is a benefit to having their product at the consumer's point of need. You can provide much more focused marketing based on the diagnostic data."

Open standards, new applications emerging

For third-party providers to gain any advantage from telematics as the technology currently stands, there would need to be a more open, standardized platform for communication. The Vehicle Station Gateway (VSG) is a technical solution proposed by an ISO workgroup that would create a standardized layer of software to manage communication between any authorized party and the on-vehicle network. The VSG would call for non-discriminatory access to the vehicle network and the diagnostic data within.

The VSG could potentially coordinate the various agendas of stakeholders with an interest in receiving different types of data from vehicles, whether they are repairers, insurance companies, or the intelligent transportation system (ITS) being developed for vehicle-to-vehicle (V2V) and vehicle-to-infrastructure (V2I) applications.

Aftermarket solutions are emerging like systems developed by Delphi, and others that leverage a connection via the driver's mobile phone. With the uptick in usage-based insurance solutions (UBI), there may also be opportunities for partnerships between repairers and suppliers and insurance companies.

"Companies with these solutions are hoping people will take this into their own hands and stay informed that way, instead of relying on the dealerships," Overman says.

Suppliers plan to embrace telematics by making their products remote-diagnostic-capable and partnering with other providers.

"They can benefit because a lot of unperformed maintenance is due to the fact that drivers don't know that a part needs fixed or replaced," Overman says. "That will trickle down. Any time unperformed maintenance is reduced, that's money back to the suppliers."

Parts suppliers could also potentially receive data from large fleet customers or OEMs about product performance failures, providing valuable predictive information that would affect inventory-stocking levels.

"We can category manage very clearly using that type of data and making sure the right parts are in the right place," Sissmore says. "That's theoretical now, because we're just now starting to collect that data."

Right now, Sissmore says the sweet spot for the aftermarket is in working with smaller fleets. "Those fleets are serviced by outside shops, but they usually aren't using the big fleet-based telematics systems," he says. "There has to be a proactive sales approach at the service center to go after that business."

"The solutions will have to be more user friendly," Overman adds. "Eventually, these system will be more about connecting people and letting them check vehicle issues on their phones. You can monitor you house and lock your doors with a smartphone now, and you should be able to do the same thing with you car."

Subscribe to Aftermarket Business World and receive articles like this every month….absolutely free. Click here.