When executives heard about Verizon’s acquisition of Hughes last year they laughed, they gasped and then they applauded.

They laughed because $612M sounded crazy. They gasped because they realized that Verizon was very serious about telematics, maybe more serious than anyone realized - $612M serious. And they applauded because it was good news for every other company in the space looking for an exit-strategy story to tell their investors and boards.

It has happened again, this week, with Google’s reported acquisition of Waze for an estimated $1.1B. Observers laughed and scoffed – myself included. We gasped. And, now, we applaud.

Google will soon be telling us why it made this acquisition.  The available reasons include:

·         Access to Waze’s crowdsourcing platform for location information which offers a level of engagement with users that exceeds in depth anything Google has achieved with its various properties;

·         Access to Waze’s engagement with media – broadcasters such as ABC have demonstrated a strong interest in Waze’s traffic information – especially its personalized elements (Has “waze-er” made its way into the dictionary yet?);

·         And 47M+ users globally is nothing to sneeze at.

What is the impact of this acquisition?

Traffic information services are inherently social.  Waze was the first organization to not only recognize this insight, but to aggressively put it to work.  And when driver distraction became an issue, Waze found a way to enable traffic reporting by waze-ers in a hands-free, non-distracting manner.

INRIX has its partnership with Aha for reporting traffic incidents in real time via the Aha Radio app.  Multiple organizations capture probe data to report traffic flow in the aggregate.  But with the exception of InkaNet in China, Waze was the only company that allowed one user to see the progress of another user on the road.

Waze-ers (apologies to Diann Eisnor) gained recognition, particularly during Los Angeles’ Carmageddon construction project on the 405 (fears of a traffic calamity did not pan out, though Waze was prominently featured by local television traffic reports trying to help hapless drivers).  At each step of the way Waze showed the power of a very personal connection with drivers including gaming elements and reporting of real-time events on the road.

Some car makers already understand the power of probes, as Audi, Ford, Toyota and BMW have partnered with INRIX to capture and share vehicle probe data to enhance their own traffic information services.  But even these forward looking organizations have failed to deliver the personal touch.  (Fiat’s Eco-drive does offer some game-play and community elements, though not in real time. 

The next step will be to build embedded platforms capable of capturing and uploading on-board camera and sensor inputs in the event of a “delta event” while driving.  Cars with embedded telematics systems ought to leverage historical data such that they are able to identify when traffic conditions are out of the norm and automatically capture and transmit relevant on-board data. 

With its market advantage in aggregating probe data from embedded telematics systems, INRIX is perhaps the greatest beneficiary of the Google acquisition – especially in light of its upcoming IPO.  Other valuation beneficiaries ought to include navigation providers (deCarta, TeleNav, Navmii, Fullpower, Nokia, TomTom), though none of their stocks rose. 

But, finally, the billion-dollar acquisition of Waze by Google ought to be a big heads up to every car maker.  From GM/OnStar to Toyota, Volkwagen, Hyundai and Geely, the embedded connection in the car represents an extraordinary opportunity to connect to the customer for the purpose of delivering a personalized traffic information experience.

As I have said and written many times, traffic information is the single most important telematics application.  Car makers implementing telematics must leverage vehicle probe data to enhance traffic information services.  And personalizing that service by allowing real-time reporting – either in an automated or in an ad hoc hands-free fashion – will deliver immense value to the customer AND stockholders.

(This commentary was written at the request of and published simultaneously by AutomotiveWorld - http://tinyurl.com/lfxm4jf)

Brazil is known for its activist government, particularly when it comes to the country's economy.  Brazil's government has an impressive track record reversing its economic misfortune and runaway inflation.  But Brazilian consumers now must take the bad with the good, meaning taxes are high, as are the prices of cars, even in the absence of competitive safety systems and quality construction.

As the world's fourth largest car market, seventh largest producer of cars and one of the fastest growing car markets, Brazil faces opportunities and challenges.  Brazil sees an opportunity in leveraging its burgeoning automotive influence to become an exporter of cars.  But before it can export it will have to bring the quality and safety of its cars up to par.

According to a report in just-auto, Luiz Moan, the new president of Anfavea, Brazil’s automotive lobbying group, is seeking to restore Brazil’s auto exports to 2005 levels or higher.  Exports of cars have plunged by nearly 50% since 2005 as Brazil’s economy has strengthened, along with its currency.  Just-auto reports that Anfavea’s goal is for 5M in domestic sales, 5M in domestic production, 1M exported and 1M imported – with the import target slightly exceeding 2005 import levels.

Brazil’s government clearly regards its swelling automotive market as a strategic asset and, true to form, has sought to both protect and stimulate it – reducing industrial taxes in the past year and imposing a harsh import duty late in 2011.  The tax initiative had some positive impact in maintaining growth and the import duty brought immediate commitments from importers (ie. BMW, Hyundai and multiple Chinese importers) to open new factories or expand existing facilities.

Brazil is still struggling to come to terms with high rates of vehicle theft, stifling traffic conditions and increasing highway fatalities.  Brazil has surpassed the U.S. in the number of annual highway fatalities as well as the rate per miles driven, cars owned and per 100,000 citizens.

Brazil is hoping to combat the plague of vehicle theft by instituting its Contran 245 mandate for fitment of a vehicle tracking and immobilization device in all cars, trucks and motorcyles by the end of calendar 2014.  Management of traffic has been left to municipalities which are in the very earliest stages of developing sophisticated traffic management schemes. 

Sao Paulo has made the most progress in implementing RF technology for tolling and instituting a license plate number-based scheme for limiting vehicle use.  More clearly needs to be done and Brazil’s government is not likely to sit idly by.

Perhaps the saddest footnote to the tale of Brazil’s automotive market emergence, though,  is the rising death toll on the nation’s highways – now well surpassing the 100 fatalities/day seen in the U.S.  A report in the Huffington Post (http://tinyurl.com/mnyln6w), points to a lack of safety standards (airbag and anti-lock brake requirements coming next year!), a lack of testing facilities, a lack of consumer awareness and poorly regarded local build quality.

If Brazil is to fulfill the opportunity of becoming one of the leading auto markets in the world – not only consuming cars but building and selling them – the quality and safety of the cars made in Brazil must improve.  And this change must come even before exchange rate and other challenges are overcome.  In the end, the first to benefit from those improvements will be Brazilians. 

It will also help make Brazilian vehicles more welcome in local export markets which are no less protected than Brazil’s own.  If Brazil can establish safety leadership for the region, Brazilian cars might become attractive imports for Venezuela and Mexico, rather than being seen as inexpensive “deathtraps,” as they are perceived today.

Google and its self-driving cars (SDCs) are scaring the wits out of the automotive industry. There’s nothing major car makers would like to see more than a swift departure of Google from the automotive domain. The next best outcome for auto makers, therefore, is to discourage or delay Google-led initiatives like SDC.

The National Highway Traffic Safety Administration has come to the rescue with guidelines for states in the U.S. that may be considering allowing self-driving cars to operate. (Google has stated that it does not support the NHTSA guidelines.)  These guidelines boil down to:

·         Simple transition from automated to driver control

·         Be able to detect, record and inform driver if the system malfunctions

·         Technology does not disable federally required safety features

·         Records information in the event of a crash

More details are available:  http://tinyurl.com/n2j5rpr

There are currently two paths toward self-driving cars.  One path, the one with which more consumers will be familiar, is the path defined by Google’s autonomous car – and already familiar from multiple DARPA-led challenges where various organizations and university programs create autonomous vehicles competing to cross the desert or operate in city traffic.

The other self-drive car path is based on 802.11p DSRC (Dedicated Short Range Communication) technology – now being tested at the University of Michigan Safety Pilot study - http://safetypilot.umtri.umich.edu/.  DSRC is the technology behind vehicle-to-vehicle and vehicle-to-infrastructure technology intended to enhance vehicle safety by creating a network of vehicle communication for the purpose of eliminating all driver-related collisions or approximately 80%-90% of accidents.

As a result, what is emerging is a private initiative currently “led” by Google – as the first company to put a self-driving car on the road – competing with a vision of autonomous driving ultimately enabled by a government mandated DSRC module.  NHTSA’s recommendation that states only allow SDCs for testing purposes only for the next four years buys time for the auto industry to “catch up” with Google’s massive headstart in the marketplace and the minds of consumers.  (Audi notably has its own autonomous car operating in the U.S.)

While the Google car is notorious for its use of a rooftop lidar device reportedly having a cost of $70,000, the expectation is that the size and cost of this hardware will both shrink rapidly.  Meanwhile, NHTSA is pushing toward the eventual mandate of a DSRC module in every car intended ultimately enable self-driving cars along with a range of other applications focused on safety and traffic management.

The auto industry’s response to Google’s private commercial initiative was evident in survey results released last week at the Telematics Update 2013 event.  The Alliance of Automobile Manufacturers (AAM) released survey results showing that 33% of consumers think the idea of self-driving cars is a good one, but the AAM chose to focus on the 42% of respondents who said it was a bad idea.  A further 24% were unsure what to think.

To this analyst, the idea that any consumers at all viewed self-driving cars as an attractive proposition is big news.  It’s not as if Google launched its car in response to overwhelming demand.  The move was an intuitive one driven by personal experience – more and more people find driving intrusive and unpleasant and will welcome the SDC concept.

The AAM findings go on to report that 75% of respondents said they were very concerned that companies would collect personal data and 70% said they were very/somewhat concerned this information would be shared with the government.  AAM also said 81% of respondents reported they were either very or somewhat concerned that hackers could gain control of self-driving cars.

The irony here is that a Google-type SDC is far less likely to be sharing data with the government or to be exposed to hackers than a car with a government-mandated DSRC module.  Who is a consumer more likely to trust these days:  Google, with whom hundreds of millions of consumers are already sharing their data; or the government (ie. NHTSA), which has recently been caught in a range of over-reaching personal information intrusions in recent weeks.

My money is on private, commercial initiatives, such as those driven by Google, Audi, Continental and other car makers and their suppliers.  The impact of the government mandate approach has been to narrow the field of potential participants in the DSRC space, freezing out innovation and investment.

Further working against the long-term success of DSRC has been the inability of the leaders in the space to find and adopt practical applications for the technology.  In 10 years there has been little or no commercial deployment of the technology.  It appears that even the Federal Communication Commission in the U.S. – the agency responsible for allocating the required spectrum – has lost patience with the NHTSA program – choosing not to “protect” the spectrum from unlicensed use.

The first green shoots of DSRC deployment are beginning to appear, with Kapsch announcing a self-parking implementation for commercial vehicles.  Let’s hope this is just the beginning.  Next steps ought to include deployment of DSRC on emergency vehicles (for intersection collision avoidance – 9,000 people killed annually in the U.S. at intersections) and fleets.  But 10 years of testing with no deployment raises serious questions regarding the management of the DSRC program.

NHTSA and AAM ought to be fostering not discouraging development and deployment of SDC technology.  Telling states to shift into a testing-only mode is hardly the kind of bold innovation-fostering push the industry needs.  With 33% of consumers telling AAM they think SDC is a good idea, it is clear there is a market for the technology.

Simple directives are best.  All NHTSA really ought to say at this point is that a driver must be in the driver seat at all times and the driver is still responsible for the operation of the vehicle.  One sentence, rather than 14 pages of regulatory hoo-hah.

Rumors ran rampant last week, and the week before, that Facebook and then Google were in talks to acquire Waze, the Israel-based crowd-sourced navigation solution, for approximately $1B. The price may be about right but the acquisition target is wrong.

All arrows are pointing in the direction of R.L. Polk and Carfax as the next big automotive acquisition.  Industry sources suggest that R.L. Polk is the more likely acquisition target, primarily for its CarFax division. For several months it has been known that R.L. Polk is exploring strategic options, including the sale of Carfax or even an IPO.

Potential acquisition candidates cited in press reports include Automatic Data Processing (ADP), Reynolds and Reynolds, Dealertrack Technologies, KAR Auction Services, McGraw-Hill Cos, J.D. Power and Associates, Cars.com and Cox Enterprises, which owns AutoTrader.com. AutoTrader.com has likely taken itself out of the running after announcing a marketing relationship with Experian which owns Carfax vehicle history report (VHR) competitor AutoCheck.

The road to an acquisition was recently rendered a bit rocky by a lawsuit being threatened by a dealer franchise attorney – Leonard Bellavia – on behalf of automobile dealers challenging the alleged monopolistic tactics of Carfax including exclusive agreements with OEMs and others locking in premium charges for VHR for certifying used cars. The Carfax service is used widely by OEMs as well as by Cars.com and Autotrader.com. One of the most galling elements, of course, is recent television ads that not only encourage consumers to “ask for the Carfax” vehicle history report, but that disparage dealers who don’t make the information available.

Lost in the news of the potential R.L. Polk sale and the threatened lawsuit is the actual treasure-trove of data that Carfax represents. Carfax has compiled what it describes as 11 billion vehicle records from 44,000 sources across North America including VIN-specific service histories and diagnostic data.

In February, Carfax launched its Carfax Service Network designed to help dealers better target service opportunities by leveraging the massive Carfax database. In case anyone failed to get the message, Carfax noted that the Automotive Aftermarket Status Report of the Automotive Aftermarket Suppliers Association identified an estimated $60B in “manufacturer-suggest maintenance (that) goes unperformed every year.” Carfax is offering to help dealers and independents better target those opportunities.

But even more essential than that, to a Google or Facebook, is the VIN-related data including owner information that can be leveraged for better targeting of advertising. As if Google and Facebook didn’t already know enough about the users of their services for the purposes of targeted messages, the acquisition of Carfax will enrich these organizations with mine-able data regarding the average person’s most expensive asset.

By comparison, Waze has a crowd-sourced map that neither Google nor Facebook need and a user population that is miniscule relative to the existing user base of either Google or Facebook. And Waze has failed to solve the location-based marketing/advertising challenge in a material way capable of having a transformative impact on either Google or Facebook.

This is not to say that Waze is unpopular. Waze is the go-to navigation solution for tens of millions of users around the world.

But Carfax is a play for immediate revenue, a recognized and powerful brand, a massive mine-able database, and a roster of contractual relationships with OEMs, dealers and independent shops that promises ongoing returns. But, most important for Google and Facebook, is the synergy of the Carfax database with Google’s and Facebook’s existing resources and advertising model. No other potential acquirer has as much to gain from a Carfax acquisition as either Google or Facebook.

Usage-based insurance is a consumer deception. It is a shell game being foisted on consumers to lure them into allowing their car insurance company to glance over their shoulder as they drive and determine their insurance rate based on direct observation of their driving behavior.

UBI programs will no doubt be the focus of the upcoming Insurance Telematics Europe 2013 event in London May 7-8. The focus on UBI at this event is appropriate as the UK remains a source of critical leadership in bringing UBI to the mass market, something that has eluded all other geographies, including the U.S.

The failure of UBI programs to capture the imagination of the consumer lies in its deceptive quality.  The deception lies in the assumption that insurance companies know anything about what constitutes safe driving. But it is actually worse than that, because insurance companies are only allowed to use a limited set of data, depending on the regulatory jurisdiction, to draw their underwriting conclusions.

The attraction of usage-based insurance, or UBI, is that it is a potentially superior tool for determining rates than the existing models derived from driving history, credit scores, and demographic data.  UBI is also attractive to insurance companies trapped in a low growth increasingly low margin industry, because it allows them to draw away the lowest risk drivers from competitors while giving longer term customers a reason not to change.

Regulatory authorities and governments also like UBI programs because the participants tend to drive less, reducing congestion, carbon emissions and the potential for collisions and expensive claims. For young drivers or drivers with poor driving histories UBI programs, allowing remote tracking or monitoring, may be the only means of obtaining affordable insurance.

Strategy Analytics' own research has shown the highest level of interest in UBI programs among younger demographic segments in Europe and the U.S.  (Consumer Interest in Usage-based Insurance - http://tinyurl.com/blfq84q)

In Europe, where regulators have banned gender bias in car insurance underwriting, UBI may be an attractive work-around. And pay-as-you-drive programs based almost entirely on mileage, have also emerged for drivers who simply don’t drive much and, therefore, shouldn’t have to pay the same rates as those who drive more.

But the shortcomings of UBI programs are many and those shortcomings have limited the adoption of the technology to a few million users globally. At the core of consumer resistance is the surrender of privacy inherent in allowing the tracking of driving behavior. For the customer, UBI can be a crap-shoot – a 50-50 proposition that participation will actually produce a meaningful discount.

The offered discounts range from 5% just for the initial participation to as much as 40% based on the results of the tracking analysis. But some drivers will not qualify for any discount which can create a quandary in the event of a program using a tracking device that has been permanently installed (as opposed to an easily removed OBDII plug in), or in the case of a dealer or car OEM brokered offer that produces no discount. In the event of the former case the device may have to be uninstalled at a cost to the consumer, and in the latter case the customer may harbor bitterness toward the car maker or dealer.

But the basis for the discounting is specious. The most commonly cited factors are mileage, acceleration and hard braking. Some country and state regulators have banned the use of speed information for rating and we have already noted the restrictions on gender in Europe.

A recent conversation with a BMW executive had me questioning the entire UBI proposition. BMW will never participate in UBI offers, he said, because penalizing drivers for hard braking or acceleration is antithetical to BMW’s vaunted “ultimate driving” experience.  If BMW drivers participate in UBI programs and are, therefore, discouraged from hard braking or acceleration by their insurance companies, it undermines many of the pleasurable principals of driving a BMW in the first place.

But this is not just a BMW issue. An executive for a large multinational insurer recently questioned – in a personal conversation – the relevance of “hard braking” as an underwriting criterion.  Sometimes hard braking is a life-saving decision or an effective or appropriate reaction to an urgent or dangerous driving situation.

Many drivers have described to me the potentially harmful result of being forced to think twice or three times about accelerating or braking because of the presence of the tracking device on their car.  And I have yet to find a driver that is fond of the annoying beeping sound emitted by Progressive Insurance’s SnapShot device during what the device determines to be a hard-braking moment.

The Solution

My brother was visiting me recently and I told him about the tracking device I had installed in the OBDII port of my car for the purpose of qualifying for a lower insurance rate. His immediate response was: “Why don’t they just use your phone?” With those words my brother captured the very crux of the barrier between a potentially user friendly solution capable of empowering the customer and an annoying and invasive offering fraught with frustration and built to produce disappointment.

The most prevalent UBI offerings around the world require an OBDII plug in that attaches to the diagnostic port available on most, though not all, cars around the world. While the device and the port into which it is to be inserted are relatively simple to understand, the process is not user friendly.

Getting the device to the consumer generally requires the delivery of a product that has been programmed to work with the specific brand, model and year of vehicle to be insured. The hardware may be the same, but the software is not.

The process also assumes that the consumer will be able to locate the OBDII port, also a relatively simple exercise, but not very user friendly given the normal requirement of peering around under the driver’s side of the dashboard. OBDII ports were conceived to enable service technicians to attached diagnostic devices, not for insurance companies to track driving behavior and vehicle performance.

But that is just the hardware side of the proposition. Getting to the delivery and installation of the hardware device assumes that the consumer has accepted the proposition of sharing his or her data with the insurance company and, for that matter, any marketing partners with whom the insurance company may have hooked up.

Actual ownership of the data in most cases appears to lie with the insurance company. And the legal implications of that data ownership are less than clear in the event of an accident. As my disclosure statement states: “You release (the provider of the UBI device and service) and (the insurance company) from any liability associated with the disclosure of information gathered through (the UBI program).”

The problem at the core of the UBI value proposition is twofold: privacy and data portability and ownership. Many consumers have discovered that staying with a single insurer for too long – with a clean driving record and a related low rate – can make switching difficult. The new insurer won’t have access to the claims (or lack of claims) history that has produced such a low rate and will be, therefore, unlikely to match that rate.  This is different in the UK where claims history is centrally available. (Lesson #1 – you ought to switch your car insurance occasionally – or often? – to ensure you obtain the best rate.)

Carriers in the UK have been creating apps to enable consumers to get a preview of their potential UBI discount, but these apps do not solve the problem of complete consumer data ownership.  The very concept of consumer ownership of driving history data has yet to be seriously presented as a value proposition by either insurers or wireless carriers.  Perhaps with data ownership individual consumers could specify which driving attributes they care to share.

Data portability is the proposition that is actually being enabled by UBI programs but it is a concept that few insurers are embracing. In an ideal world, a customer that has gone to the trouble of installing a tracking device on his or her car ought to have ownership of the resulting data and the ability to take that data to another carrier for a competitive quote.

Here, the UK is taking the lead. Just as UK car insurers have led the way in UBI programs intended to defeat rampant fraud, and just as Norwich Union in the UK was one of the first insurance companies to use the Progressive approach to UBI insurance, an emerging insurance industry service provider in the UK, Ingenin, is poised to disrupt the entire insurance industry, not just car insurance.

Perhaps not surprisingly Ingenin’s plan revolves around leveraging the smartphone and all of its sensing capability for determining driving behavior along with a lot of other usage information that may be relevant for other forms of insurance as well. In fact, Ingenin’s proposition not only provides a platform for tracking driving behavior it enables the capture and delivery of information for roadside assistance or crash investigations.  And the Ingenin vision also calls for alerting drivers to known hazardous conditions or accident hotzones in real-time via the smartphone.

Even more significant, Ingenin is seeking to leverage voice and facial recognition to tie the insurance to a particular driver not just to the vehicle. Ingenin has yet to announce a major partner. In the meantime, the company is continuing work on bringing its vision to life.

In the end, it may take the use of the driver’s smartphone to deliver a personalized, empowering, and portable insurance proposition capable of transforming UBI insurance into a mass market phenomenon. Consumers are much more comfortable with and accepting of sharing their personal information via their phone – something they are consciously or unconsciously doing every day.

Nothing about current UBI programs is user friendly. In fact, everything from the hardware and software to the disclosure statements and privacy surrender are fairly hostile and opaque.  The use of smartphones as in the case of Ingenin can change all that.

When visiting Shanghai a couple months ago I was struck by the fact that multiple auto dealers visited during my stay did not have cars available with activated telematics systems.  This meant that the dealer was not able to demonstrate the technology to customers virtually guaranteeing consumer apathy.

This past week I was visiting car dealers in Italy and discovered a new barrier to consumer adoption, cars without power in the showroom.  Now I am the first person to acknowledge that consumers put a greater emphasis on style, drive and price than they do on infotainment and telematics (see attached slide), but cars without power in showrooms seems absurd in an age when the electronic and software content in cars is on a steep rise relative to the value of the vehicle.

These incidents were shocking to me because I experienced the telematics disconnect in multiple dealers in China (FAW Toyota, Nissan, BMW) and the power failure in multiple dealers in Italy (Fiat, Volkswagen, Hyundai).  The Chinese experience was exceptional because in the past I have had successful telematics demonstrations at Buick, Cadillac, Toyota, Lexus and Roewe dealers.

At the time of my visit to Shanghai, the dealer said that there was only one BMW in all of Shanghai that had telematics service provisioned for the purpose of providing a customer demonstration, but that vehicle was located on the opposite side of town.  The Nissan and FAW Toyota dealers simply had not activated any of their cars.  The only similar experience from my past was with Roewe’s Inkanet-equipped 350 which was most often lacking power on the dealer floor because the Android-based infotainment system had drained the battery.  (Roewe eventually installed Inkanet demonstration kiosks with their own power.)

The experience in Italy was surprising for the manner in which it was discovered.  The hatchbacks of many of the cars – which close electronically – were all ajar, not completely shut.  The natural instinct when one sees a door that is not fully closed is to give it an added shove or open and close it again.

Attempts to close these hatchbacks brought either a panicked or slightly amused response from the dealer sales person who had to explain that the hatch was powered and, when left on, tended to drain the battery in the showroom rendering the feature useless and the hatch not “closable.”  Usually the dealer had taken the added measure of wrapping paper or cardboard around the latch to prevent damage from customers trying to slam the hatches shut.

Is this problem emerging because cars are sitting too long in showrooms unsold?  Are dealers trying to avoid paying steep electric bills?  Not likely.

What is more likely is that dealers simply consider the electronics in the car to be a low priority, a fact that is borne out by Strategy Analytics research (http://bit.ly/XLOWpJ - Vehicle Purchase Behavior and Priorities of Chinese Consumers).  They have either reached this conclusion on their own in reaction to customer behavior or they are responding to a lack of auto supplier focus on selling sophisticated infotainment systems.  The danger, of course, is that dealers are following the lead of the factory.  If OEMs are not making a priority of infotainment systems then low attach rates and low customer satisfaction scores will result - ie. a self-fulfiling prophecy.

It may also be that dealers don’t want to engage in resolving consumer confusion regarding smartphone connections, voice recognition, navigation systems and apps.  Years ago Fiat was touting Blue&Me with point-of-purchase materials throughout much of Europe, but Blue&Me signs are no longer present in Fiat dealerships in Italy.

The picture is even more complex for Fiat, given the presence of Garmin, TomTom, and Magneti Marelli/Wind River navigation system options on its cars.  But Volkswagen has a growing range of infotainment options, as well, none of which could be demonstrated at the dealer visited in Italy.

The one exception encountered during this brief dealer tour was Hyundai.  Hyundai had a large sign touting the special edition of its i20 with a Pioneer infotainment system (the Aha Radio) enabling connection to a customer’s iPhone to access content and applications.  The dealer opened the hood to engage the battery to enable the demo, which amounted to a self-demo of the system which paired quickly and streamed audio via the supplied cable.

The sad reality is that solutions exist for both the telematics system provisioning problem in China and the power failure in Italy.  But the message is clear.  Selling infotainment and telematics systems introduces a new challenge to the process of selling cars – calling attention to power requirements, user interfaces, smartphone connections and apps.

Car makers from Ford and GM to BMW and Hyundai have introduce special dealer training programs and even Apple-like genius bars to bring customers – and dealers – along on the technological journey.  Clearly more guidance and support are needed if the industry is to achieve success with connected cars.  But making sure cars in showrooms are powered and that embedded telematics systems are provisioned seems like pretty basic stuff at this stage.

“Fasten your seatbelts, it’s going to be a bumpy night.” – Margot Channing as played by Better Davis in “All about Eve”

It is the evening before my test drive of Tesla’s new Model S, the $100,000 sedan intended to change everyone’s thinking about what an electric vehicle can be or do.  But what the car can be or do is secondary to the impact the company is having on the automobile industry.

What is interesting is that Tesla’s impact has almost nothing to do with the car itself, but it is important to first understand how the car itself is influencing industry thinking about infotainment systems, safety and connectivity.

My test drive tomorrow in Washington, DC, follows an impromptu test drive last week in Silicon Valley.  I did not have the nerve to drive the car, which was privately owned, instead experiencing the naked, neck-snapping EV aggression from the comfort and safety of the passenger seat.

The Model S is a coiled spring capable of reaching 60mph in 4.4 seconds.  Along with that speed comes balance and poise with extra attention paid to steering and suspension. 

Of course, in the automotive infotainment industry the Model S has garnered attention for its 17” center stack display and embedded connectivity.  The display is impressive and the system’s access to streaming audio or Internet radio content sources via the embedded modem is the ultimate in convenience.  (Every competing system in the market accesses the driver’s mobile phone and data plan to deliver these services.)  The wireless access is free for the first three months and Tesla has yet to announce the pricing or pricing tiers thereafter.

More impressive than the convenient access to content, though, is the provision for over-the-air software updates – a capability that Tesla appears prepared to liberally leverage to its advantage.  In fact, the 17” display facilitates the process by detailing the latest software updates to the driver as they occur – usually overnight with the customer’s approval.  (Since first introducing the capability, Tesla has shifted to conducting initial download tests on the marketing fleet before deploying to consumers.)

The embedded modem also allows Tesla to monitor vehicle performance at all times, as was reflected in the recently disputed NYTimes review of Tesla's new East Coast fast-charging network intended to enable a gas-free, electrified journey from Washington, DC to Boston.  Setting aside the details, CEO Elon Musk's use of vehicle data to question the claims of the reviewer regarding his speed and use of HVAC was a revelation to some.  But, as a company representative clarified later to me, Tesla does NOT gather location information, only performance data.  And the customer opt in is purely binary - yes or no - and, with no location data, clearly does not encompass probe data for enhancing traffic information.

There are shortcomings to the Model S infotainment system which are readily apparent from a short drive.  The user interface – tends to default to a vehicle information screen.  Often featured prominently is a Google map which, while driving, may pixilate or disappear entirely based on the quality of the wireless connection.  This is a bit surprising given the fact that Audi has been out for two years already with AudiConnect consistently displaying Google Earth imagery over the Nokia Navteq map thanks to 2GB of cache memory.  Of course, Audi and Tesla currently share a lack of automatic crash notification capability.  (Tesla execs say they have yet to figure out a solution for replacing Google maps for the launch in China.)

What is missing in the homegrown head unit of the Model S, which is based on Linux, is a personalized experience that anticipates the driver’s needs and preferences and/or anticipates driving information needs such as traffic or weather data.  While multiple content aggregators have demonstrated interfaces fusing multiple inputs into a user interface capable of actively anticipating the contextual information needs and wants of the driver, Tesla appears to have put its entire emphasis on vehicle information management and map illustration.

Yet, even in its presentation of map information the Model S lacks 3D graphics or even Audi’s Google Earth.  Also missing is a more advanced safety portfolio leveraging sensors and cameras.  Company representatives say a more advanced safety offering is in the works and the center console display is ideally suited and prepared for such an integration.

But these “complaints” are quibbles, especially in the context of a car that can be transformed overnight by software updates.  The Model S I drove in last week may actually be different, by now, from the Model S I drive tomorrow.

But the real impact of Tesla lies in its distribution and service strategy.  Tesla is selling its cars from more than 22 stores nationwide and has won its first battle with traditional automobile dealers as a Massachusetts court dismissed a lawsuit brought by the Massachusetts State Automobile Dealers Association (MSADA).  The lawsuit claimed that Tesla was in violation of Massachusetts law governing the sales and servicing of cars.

The National Automobile Dealer Association has indicated its intent to support the MSADA’s efforts to challenge Tesla’s sales model setting up an ongoing clash between the massively influential and politically connected NADA and Tesla, which is backed by a combination of deep pockets, green technology cachet and its own political connections.

At a time when antipathy between North American automobile dealers and OEMs is at a peak around the question of facilities standardization and modernization strategies, Tesla presents a disruptive approach to vehicle sales that aligns well with the growing retailing mantra of the Apple Store.  In fact, as part of the NADA’s Phase II report on factory image programs focused on showroom modernization and standardization, the association’s consultant noted Apple’s stores as a touchstone for future store design.  (Tesla hired Apple's former VP of real estate, George Blankenship more than two years with precisely this objective in mind.)

It is no secret that car makers have been trying to steal a few pages from Apple’s playbook with “genius bars” popping up in Hyundai showrooms and with Ford, BMW and GM all adding more in-store personnel/sales counselors to explain new vehicle systems.  But if Tesla is successful in defending its right to sell cars from company-owned stores, a no holds barred struggle could emerge between OEMs and independent dealers in North America.

Further challenging the traditional model is the fact that Tesla showrooms are divorced from the vehicle servicing function.  Vehicles are serviced by independent agents dispatched directly to visit customers.  Tesla has indicated plans, at least in Massachusetts, to open a service location separate from its store, but even this concession is viewed by MSADA as either a violation or a compromise of the law governing vehicle franchises which must have service on-site.  (Tesla is showing its cars in a mall in Natick, Mass.)

So, Tesla is disrupting the automotive market in a number of ways such as:

Including the cost of the embedded wireless service in the cost of the vehicle – though reserving the right to charge for this at some point in the future

Delivering Internet radio and streaming audio via the embedded modem

Delivering seemingly unlimited and endless software updates over the embedded modem

Developing vehicle systems almost entirely “in-house” with only limited support from traditional industry suppliers

Servicing the cars using independent agents

But, most importantly, selling the cars via company owned stores and with little or no service component - since there is almost nothing to service.

With all of the attention paid to Google’s self-driving cars in the past year, one might have concluded that Google was the most disruptive force in the industry.  In fact, it is Tesla that is rocking Motown, Munich, Tokyo et. al. with its fresh-baked, homegrown approach to automotive marketing.

In comparison to Tesla, Google is a virtual lapdog doing everything it can to play nice with car makers offering up Google Maps, POIs, Google Earth, Google Search and even Android as tools for vehicle development.  Even the Google car is seen as nothing more than a marketing platform for Google technology intended for sale to the industry.

Tesla is taking no prisoners and tipping its hat to no conventions as it continues to hit or surpass its own financial and production targets.  The company is selling cars with 25% margins in a market where new internal combustion engine driven cars are sold with single digit margins and dealers hope to make up the revenue on service.  And, like Google, Tesla is sharing its powertrain development with Toyota (RAV4 EV) and Daimler - which provided Tesla with a steering wheel for the Model S.

What should OEMs do?

It is not too late for car makers to update their dealer franchise strategies and business models.  Among the steps that ought to be considered is giving dealers greater flexibility around the manner in which facilities upgrades are funded and approved.  Car makers should recognize the important customer interface role played by dealers and work to lower their costs of doing business (ie. reduce the expenses associated with diagnostic hardware and software) and give dealers access to vehicle data derived from telematics systems.

Independent dealers need to be viewed by car makers as important allies in connecting with consumers.  It is time to put aside the adversarial relationship that is undermining the customer interaction – a relationship that is essential to improving customer satisfaction scores and retention.

It is inevitable that OEMs – particularly in the luxury segment - will seek to open showrooms to match Tesla’s high profile market presence.  But these measures should go hand in hand with supporting the existing independent dealer network.  Whether or how the OEMs choose to walk this tightrope remains to be seen.  In the meantime, Tesla will be opening soon in a mall near you

*A final note on the Model S infotainment system: The car comes with access to Slacker and TuneIn Radio via the embedded modem, an industry first.  Additional apps will require Tesla approval before being implemented.  The system also allows for Web browsing.  More importantly, the nature of the configuration suggests an upgrade path focused on software rather than hardware, since the 17" display consumes so much of the space normally reserved for a more traditional center stack.  Not all drivers will be pleased with the 17" display, which tends to wash out in bright sunlight, but it is fairly stunning at night.  The navigation feedback in the display is supplemented with instrument cluster guidance.  Some customers will be tempted to rip out the standard 17" display and start from scratch - but most will be too jazzed by the car's performance to much care about that kind of radical automotive surgery.

2012 will be remembered as the year of usage-based insurance. But in retrospect it is a lot of sound and fury signifying nothing. Is usage-based insurance the silver bullet to simultaneously reduce traffic congestion, carbon emissions and highway fatalities?

The ultimate objective of UBI programs is to modify driving behavior or reward existing good driving behavior. (Yes, I know, insurance companies are looking to reduce churn by rewarding their best customers and stealing their competitors' best customers, but let's look at it from the consumer's perspective.) Some progress was made in 2012, but there is ample room for improvement in the area of on-board/embedded systems, OBDII plug-ins, aftermarket systems and smartphone apps.

So where do we stand at the outset of 2013? 

First, it is important to understand the key objectives of driver behavior modification: 

1.  Increased safety
2. Reduced emissions
3. Increased fuel efficiency
4. Lower insurance premiums

I start the year off in a new 2013 BMW 3 Series with a remarkably distracting BMW Apps iPhone integration (not reviewed here).  In trading up from my 2011 BMW 3 Series I have pleased my wife by moving to remote keyless entry, but disappointed her with a car that has no seat warmers – unlike its predecessor.  Like its predecessor, it also lacks a backup camera or sensors.  (Clearly out of step with the impending U.S. mandate.)

Still, the new car does come with a turbo-charged four cylinder engine and start-stop technology significantly reducing fuel consumption while increasing horse power.  There are multiple sources of feedback around green driving in the car and there is a toggle near the shifter to select driving style – Sport or ECO PRO.

With ECO PRO, the driver can extend the range of the vehicle by adjusting driving style according to cues in the instrument cluster.  It is no surprise that a German car company offers such a function since an hour-long drive on the Autobahn can produce dramatically different fuel consumption – and, hence, range – results based on speed.

A system for discouraging speeding in a BMW is a stroke of genius, particularly for me, given the fact that my record of violations spiked following the acquisition of my first BMW.  (There is no app – not even Coyote or Trapster – that would have saved me.)

The ECO PRO driving mode introduces a series of instrument cluster symbols and signals making very subtle (it IS a BMW after all) suggestions primarily based on reducing acceleration.  ECO PRO also ties into the operation of climate control systems for maximum fuel savings.  The system is even able to calculate and display for the driver the estimated percentage of fuel savings based on the settings selected.  The driver can also control the timing and nature of the driving tips offered by the car.

This system can provide a history of fuel consumption including energy recovery.  And, yes, it can also control the rate of cabin heating or cooling and the output of the seat heater – if there were one.  Similar systems are available from other car makers, but I am most familiar with the BMW offering and it is emblematic of an industry trend.

In contrast to this system of buttons, settings, alerts, icons and statistical analysis, my wife’s Toyota Sienna is equipped with an aftermarket Pioneer Aha Radio which periodically provides an “ECO Graph” of her driving performance.  I personally think my wife is something of a lead foot, but she thinks she is performing pretty well in this report.

Unfortunately, the report appears at random intervals and fails to explain what, if anything, my wife is doing well or how she can improve.  For her, the driving feedback is simultaneously interesting, intriguing and frustrating.  She thinks there should be rewards – anything from gold stars to insurance discounts – associated with her good driving.

There is no doubt that she is correct.  Her driving experiences in 2012 included a brief stint testing Progressive Insurance’s SnapShot usage-based insurance OBDII plug in.  The device annoyed her with loud beeping during hard braking, but wirelessly delivered a graphical presentation of her driving behavior to a Website. (There are a wide range of third-party offerings with Website dashboards charting driving behavior and providing driving tips.)

Progressive offers SnapShot in Virginia, where my wife and I live, but after mailing the device back to the company, the insurer never responded with an evaluation or offer of coverage.  SnapShot claims customers can save up to 30% in the program. 

Whether that is actually true or not depends on how much you trust an insurance company.  Progressive more or less discourages drivers the company determines will not benefit from the program.

My wife briefly tested another OBDII plug-in from a company called GridLoyalty.  Founded by a former Intelligent Mechatronics executive, GridLoyalty promised a range of affinity offers based on driving behavior.  Unfortunately, most of the affinity offers were associated with organizations – such as convenience stores – in the Las Vegas area.  While the device provided wireless feedback to a Website – a la Progressive – there were no offers in Virginia.

In the year past, insurance companies and their third-party partners, crowed about the wonders of usage-based insurance.  Even government regulators embraced usage-based insurance as a tool for reducing driving and, therefore, congestion and emissions.  Studies show that drivers in UBI programs tend to drive less in general and after joining the programs.

In spite of the enthusiasm and publicity surrounding UBI programs and more than five years of market availability there are still fewer than 2.5M users of these systems around the world.  There is good reason for this lackluster consumer response.  The programs offer minimal savings and require a significant surrender of privacy.

The daily relevance of an insurance discount is less a benefit than a sword of Damocles swinging over the head of the driver in case that driver deviates from his or her previously safe pattern of driving.  What is missing are daily rewards and/or penalties.

MetroMile, an insurance startup, is introducing a pay-per-mile based offering that the company hopes to expand to other value propositions such as vehicle service and warranty offers.  The MetroMile offer is a step in the right direction, but falls short.  What is really missing is a more comprehensive affinity program tying vehicle use to offers and discounts for driving-relevant products and services such as fuel, parking, restaurants and tolls.

The MetroMile offer (Company Website: http://bit.ly/ZRHooE) is attractive for its simplicity relative to offerings from insurance companies.  But what is necessary is for local governments, tolling authorities, roadside franchise operators and such to coalesce around wireless payment systems to enable a more broad-based program of driver rewards and, yes, penalties – ie. drive less, save more.

Implications:

Car makers, such as BMW, are already delivering on in-vehicle systems designed to modify driving behavior.  The next step is actually rewarding that good behavior with more than just insurance discounts based on intrusive tracking systems. 

A free cup of coffee, tank of gas, parking space, hamburger or oil change ought to be enough to convince nearly any driver to be willing to share their location information and vehicle data.  Though distracting, BMW Apps does provide smartphone-based vehicle information feedback while also enabling some limited remote operation of the vehicle - illustrating the fact that there is a role for the smartphone in this new value proposition.

And what about traffic management authorities able to reward drivers - from specific neighborhoods and/or on short notice via smartphone apps or other alerts! - for NOT driving on days when high levels of congestion or pollution are anticipated?  Or maybe specific drivers are granted HOV lane access or other driving privileges on demand or for a particular time of day - or for a premium as in the Washington, DC area.  There are clear opportunities for public-private collaboration and/or direct consumer engagement.

Is there a future for usage-based insurance?  Yes, there will always be consumers who will do anything for a discount of any kind.  But usage-based insurance is likely to remain a niche application for the foreseeable future.  That niche role will be a disappointment to governments hoping for UBI programs to provide a market-based means for reducing emissions and traffic.

But if car makers are able to build more effective affinity programs, then UBI programs will benefit from the expansion of vehicle data sharing.  The question is which marketing partners and OEMs will lead the way in 2013 and what will these programs look like.  And, finally, is it possible to retrofit a 2013 3 Series with seat warmers?

A traffic tempest has erupted in a Washington, DC, teapot. The leading local broadcast traffic information provider, WTOP “with as many as 20 full- and part-time reporters,” in the words of one blogger, has “outed” local broadcast competitor, NPR affiliate WAMU, for using a remote traffic reporter – Jerry Edwards, previously seen regularly on NBC’s Channel 4 until his retirement in June 2011. Edwards is reporting DC traffic for WAMU from his home in Sarasota, Fla., where he moved after selling his home in Maryland, according to a Washington Post report.

The Washington Post reported the not unusual traffic reporting scenario on Sunday, November 4^th (http://wapo.st/PRFfoy), which was followed by a blog on the topic (http://bit.ly/R9km4Y). At issue is whether a traffic reporting organization needs a physical presence in the market where it is reporting traffic.

With millions of advertising dollars at stake, the question is not a trivial one and it touches every organization from the local news-radio station to the state Department of Transportation, to traffic content providers and, yes, Google. Timely and accurate traffic reporting is vital to the management and movement of traffic around metropolitan areas and the guidance provided via navigation applications.

Location, location, location

The idea boils down to whether traffic can be adequately reported and interpreted from a distance or requires on the ground information gathering – that is, on top of in-place cameras and sensors and public reporting of incidents. WAMU has clearly voted in favor of remote traffic reporting. WTOP is insisting on the merits of local traffic reporting.

WAMU has a lot of company in the remote report category. Nokia Location & Commerce spun off its media assets more than a year ago in the form of Radiate Media. Radiate Media enables remote traffic reporting by providing access to real-time traffic and probe data with inputs from various DOTs, and incident and event data from “fully staffed operations centers” with 24/7 technical support, according to the company’s Website.

Actually, Radiate Media’s arrival coincided with the closing of many of the original Traffic.com local traffic reporting offices, such that most of Radiate’s activities are coordinated between Chicago and its Salt Lake City headquarters. Traffic.com was the traffic reporting company acquired by Navteq years prior to its acquisition by Nokia.

The remote traffic reporting philosophy is also supported by companies such as Google (handset GPS probes), Airsage (network signaling), and Trafficland (DOT cameras). Each of these companies views its technique-dependent solution as either the ideal approach to traffic reporting or as good enough. While some of these organizations provide predictive traffic modeling based on their single-sourced data, they all emphasize real-time traffic information.

This analyst has trumpeted the value of hyper-local insights regarding all aspects of location information. Traffic is no exception. But it is difficult though not impossible to offer hyper local traffic insights from more than 900 miles away, as WAMU is trying to do. It all depends on the input sources.

Better is the enemy of good enough

But the traffic data market is a classic case of better being the enemy of good enough. The only problem is convincing consumers that there is a better solution when they are content to get by with good enough. Worse, good enough solutions have sown despair among some traffic information users seeking truly helpful information. These are the people who regard traffic and weather as equally unpredictable – recent well-anticipated East Coast events notwithstanding.

WTOP has taken up the gauntlet of delivering better traffic information. The station approaches traffic as “a major news-gathering undertaking,” in the words of the blogger.

But WTOP’s commitment to authenticity and local reporting faces a steep challenge as a value proposition when information regarding traffic incidents and road conditions are freely and publicly available to all on the radio and via smartphone apps.  The station emphasizes its 24/7 commitment in personnel and information integration aided by listeners who call in to describe what they are seeing on the roads.

If you care about traffic in DC, you listen to WTOP

The WTOP effort is surprisingly analog, with individuals reporting traffic events live as they unfold, in a world dominated by digital inputs.  If you care about traffic in the DC area, you listen to WTOP.

WTOP executives further note that “there are no traffic cameras on federally controlled highways” and “a good percentage” of traffic cameras in the area are out of service at any given time. It is worth noting that Clear Channel’s Total Traffic Network, which maintains a regional office in Silver Spring, Md., maintains its own traffic camera network.

In fact, it is curious that the WTOP-WAMU contretemps almost completely omitted mention of Clear Channel. Clear Channel Communication’s Total Traffic Network maintains the largest private traffic monitoring network in the U.S., with 16 regional traffic hubs operating 24/7 and 10 smaller satellite offices.  TTN also maintains a proprietary network of traffic cameras as well as some aircraft all feeding the company’s TrafficNet internal traffic data platform which in turn feeds services including SigAlert as well as embedded navigation systems.

The challenge for all lies in the fact that with improvements in technology come parallel improvements in both local and remote traffic reporting. Different types of traffic information offer different value propositions for different users.

Casual observers of traffic information online, on the radio or on TV, may be satisfied with a general overview of conditions, while people driving in cars or navigating to a specific destination will not only want more timely and accurate information they will also need predictive traffic information, whether they are conscious of that need or not.

The increasing importance of traffic information, in a world of increasingly clogged highways, has stimulated interest in traffic information. What is unfolding today is a process of traffic information user education.

For some, remote traffic reporting will be okay. The WAMU solution is not unlike the Inrix-developed traffic app within the Aha Radio service from Harman. The app converts traffic flow information into speech output integrated with relevant local event notifications. It is a good enough solution.

The debate between WAMU and WTOP has implications for satellite radio broadcaster SiriusXM. Long considered a provider of good enough subscription-based traffic information, SiriusXM is in the midst of an extended process of determining a new way forward with a better traffic solution to preserve and expand its lucrative subscriber base.  When consumers are paying for traffic data as in the case of SiriusXM good enough can suddenly become not good enough.

Traffic data evolution continues

New and improved (Bluetooth) sensor data is on the way into the market from multiple suppliers fulfilling individual municipal and DOT contracts. Also on the way are traffic cameras enhanced with object and license plate recognition technology. With more embedded telematics systems will come improvements in vehicle probe inputs as well as systems and apps, such as Waze, that enable user-generated inputs and observations.

Traffic information suppliers are also moving steadily toward digital radio and IP-based TPEG traffic information that vastly increases the amount of traffic information that can be transmitted while enabling greater granularity in the identification of congestion location. And while some suggest, perhaps sarcastically, that drones would be helpful in interpreting traffic events and conditions it is no joke that drones could well replace helicopters – of which there are precious few today, replaced by cameras – to monitor choke points.

Implications

As George Harrison once sang: “It’s all up to what you value.” If traffic information is not mission critical to you or your organization you will not care about Jerry Edwards delivering the traffic news remotely. The important thing to know about traffic is that the nature and value of traffic information is changing every day.

There is an increasingly diverse array of traffic information sources and a steady shift toward higher frequency, higher bandwidth, higher resolution sources of traffic information obtained over fatter, faster pipes. The information is being interpreted on increasingly powerful computers with increasingly sophisticated algorithms capable of integrating an ever-expanding array of data types.

The last mile of traffic data delivery can be anything from an app to a radio or TV broadcast or Internet feed. Or the traffic information could simply be operating in the background of an off-board navigation solution fine tuning optimal routes for avoiding traffic.

Digital traffic resources are increasingly challenging analog human traffic reporters. Will digital “eyes” ever completely replace the human eye? Maybe. But until that happens, WTOP remains one of the best traffic information service providers in the country and WAMU’s traffic information is probably good enough for most.

The automotive collision repair business in the U.S. grew 3.3% in 2011 to $38.7B, in spite of a decline in miles driven and the number of collisions, according to the latest report from the Automotive Aftermarket Industry Association. Cars are lasting longer, being driven less and getting in fewer accidents, the report notes, citing multiple insurance and automotive industry sources.

The 2012 edition of the AAIA’s Digital Collision Repair Trends: Industry Statistics & Analysis arrives just a week before Telematics Update’s Insurance Telematics event in Chicago. Insurance and automotive industry executives will convene next week to discuss usage-based insurance and the insurance implications of car sharing and EVs, among other topics.

The AAIA is most focused on the concerns of the independent car repair shop industry, of which there were 40,279 as of 2011, down from 46,700 in 2001, according to the report. Insurers and independent car repair shops generally share the same objectives.

Not all car dealers embrace the collision repair business, but for most it is an essential element in their revenue portfolio. Every OEM wants to see its cars repaired with genuine OEM parts. The accident aftercare business is a strategic one for both new car dealers and OEMs and telematics – a topic not covered in the AAIA report – can serve as a lead generating device for the dealer channel.

The study reports that the average number of vehicle miles driven declined in 2008 for the first time in two decades. The total was 2.96 trillion miles in 2011, down 1.2% from 2010. Roadway congestion has also leveled off, according to the report.

The declining rate of vehicle usage has likely contributed to declining collision rates and declining insurance claims, both of which are cause for concern to both insurers and repair shops. Most of this decline is coming in the developed world where more well-equipped cars are available with better educated drivers. In developing markets around the world rising levels of vehicle ownership have brought to the fore issues of security, theft and rising accident rates setting the stage for very different insurance priorities. (Preventing fraud has also emerged as a core issue throughout Europe.)

The proliferation of collision avoidance technologies including adaptive cruise control, blindspot detection, back-up cameras and lane departure warning have certainly contributed to the decline in collisions in the developed world. But the U.S. saw a slight uptick in vehicle ownership last year after a leveling off between 2008 and 2010 – rising slightly to 240.5M vehicles in 2011, according to data from Polk, which was a contributor to the report. More cars usually translates to more miles driven and more accidents.

Polk also contributed average vehicle age data to the study. Polk reports that the average car on the road in the U.S. is 11.1 years old, continuing a steady unbroken yearly rise from 8.4 years in 1995. Polk analysts say that the U.S. can expect to see the overall rate of vehicle ownership to resume its climb as the economy recovers and that the average age of a car will peak.

Vehicle age is a critical factor in determining the repair destination. AAIA says that slightly more than one in three (36.9%) of vehicles in the one year-old category have its collision repair work performed at new car dealerships. The percentage drops substantially after the first year as consumers seek independent repair channels to fulfill their collision repair needs.

So the megatrends represent a mixed bag of good news and bad news for independent repair shops. Cars that last longer are more likely to be brought to an independent repair shop for repairs, but not if there are fewer accidents.

AAIA says that in 2010, independent repair shops contributed 86.3 percent of total sales in the collision repair industry, with dealership body shops making up only 13.7% of total sales. “Previous experience” and “convenience” were the most important factors in selecting an outlet for collision repair work, the study states.

Insurers and independent repair shops have a common cause in capturing a larger chunk of the collision aftercare market. For new car dealers, the best opportunity lies in leveraging vehicle connectivity technology to better identify, respond to and capture post-collision opportunities.

Telematics has a role to play in this scenario, but no car maker has found the solution to this challenge yet. Until OEMs can solve this problem their aftersales divisions will continue to miss out on billions of dollars in revenue while dealers battle insurers and independent shops for profitable collision repair opportunities.