Automakers foresee making long-term connection to their customers

Automotive Industries, Nov, 1999 by Paul A. Eisenstein

When does virtual become reality? That's a fundamental question underlying General Motors Corp.'s aggressive entry into the world of telematics. With the formation of its new eGM unit, the giant automaker is betting it can boost revenues billions of dollars a year through digital, in-car services and hardware. GM also hopes this virtual world can give it a very real edge in product branding.

GM isn't alone. Automakers across the globe see telematics as a way to not only generate new revenues, but improve customer satisfaction, something that should translate into increased owner loyalty and bigger sales.

Telematics is "a huge differentiator," declares Ronald Zarrella, president of GM's North American automotive operations and the company's global branding chief. "There will be a digital explosion of technology in (tomorrow's) vehicles. It's the real tectonic shift."

The eGM unit is a comprehensive consolidation of GM's electronic and Internet operations, including the GMBuyPower Web site. The number of Americans using the Web during at least part of the buying process should reach 8 million annually by 2003, according to George Colony, chief executive of Forrester Research. Forrester research suggests 3% of all new car sales, 500,000 a year, will be handled entirely over the Internet by mid-decade, a figure many believe is low.

"You could argue the car companies gave away the cellular phone business to the telecom companies," Zarrella concedes. He's not willing to let that happen with such infotainment services as satellite radio or real-time traffic advisories, which GM expects to quickly generate revenues on the "order of magnitude" of $4 billion to $6 billion annually. Indeed, the revenue potential is so spectacular GM is ready to sell the hardware at a loss, even give it away, just to attract subscribers. "It's the same model as the cell phone" industry which invests about $400 for each new customer, but quickly earns it back on air time, says Marc Maes, one of the co-founders of SmartMove, a Brussels-based telematic services company.

Currently, GM's OnStar service counts 75,000 paying subscribers. By the end of 2000, the company hopes that will reach 1 million to 1.5 million.

There's yet another side to this story that makes marketing men such as Zarrella literally dance with glee. Telematics has the potential to become a huge branding tool.

"When we looked at the preference rates for our vehicles with and without OnStar, there was a big difference," explains Zarrella. "With the Chevrolet Venture (minivan), it went from 30% to 45%. Even if the increase is half that, in reality, it's a tremendous opportunity."

But the opportunities continue long after the customer drives home in a new vehicle. "From the time you sell a car until (the owner) comes back to trade in, that's maybe 36 months they're largely out of contact with you. And that's brain-dead," asserts Barry McNealy, global account manager for telematics with computer and software giant Sun Microsystems. (His better-known brother, Scott, is the company's CEO.) It's all the more frustrating since the average commuter will spend close to 90 minutes a day in that car, more time than they're likely to spend watching any single television network.

With telematics, all sorts of branded messages can be delivered along the way. Since the car is now smart enough to know when it's time for an oil change, flash a warning and offer a discount at a Mr. Goodwrench garage. Then load the phone number in the car's digital memory bank and pop up a map on the navigation screen.

Even when a car is traded in, the telematic hardware will still be there for the second or third owner to sign onto."

That's part of the reason why Mercedes-Benz will cover the basic service cost of its new Tele Aid system for the life of the vehicle. Tele Aid is an in-car emergency call system that will be available on virtually every 2000 vehicle (with the few remaining models, such as the M-Class, added in 2001). In the event of trouble, the driver simply presses a button to call for help. In the future, the German automaker intends to add other features, such as Tele-Diagnosis, which will make it possible for a Mercedes mechanic to do things such as upload information from a stalled vehicle to see in advance what is causing the problem.

Ford Motor Co. actually was first to market with an emergency call service. It launched the RESCU system, short for Roadside Emergency Satellite Cellular Unit, in 1995. But the project was allowed to languish, and has relatively few subscribers. That's likely to change soon. Ford is planning a full-scale blitz using an updated service, and is readying an eGM-style telematics program of its own.

Telematics "is the second Internet gold rush, says Brook Lang, founder and chairman of the Seattle-based service provider, InfoMove Inc.

It may be a virtual battle for dominance, but like the California gold rush of 1849, those who aren't fast, lean and efficient could very well get left behind.