By Susan Kuchinskas
Government legislation is the primary driver shaping Latin American automotive markets, according to Scott Sedlik, vice president of marketing at INRIX. One prominent example is Brazil’s CONTRAN 245 regulation, which mandates that new vehicles include tracking modules. Currently in the early stages of implementation, CONTRAN 245 is expected to stimulate demand for telematics hardware manufacturers.
A notable difference in Latin America is that most vehicles are sold without factory-installed infotainment systems; in many cases, cars are even delivered without radios. Sedlik attributes this to higher vehicle prices and elevated taxes that consumers face. As a result, communications and entertainment devices commonly included as standard in the United States and Europe are often purchased separately in Latin America.
Recent tax increases imposed on imported vehicles in Brazil—meant to encourage local manufacturing and assembly—have made non-Brazilian models significantly more expensive. For example, taxes raised the price of a BMW by roughly $5,000, reducing the likelihood that buyers will spend extra on premium infotainment upgrades.
Advantages of the aftermarket
Beyond price considerations, purchasing infotainment systems through the aftermarket presents distinct opportunities for hardware makers. Because vehicle and infotainment purchases are frequently separate decisions in Latin America, consumer electronics firms can innovate independently of the longer OEM production cycles. This freedom allows vendors to offer a broader range of infotainment options at multiple price points and to iterate product lines quickly to match local demand rather than OEM schedules.
“It gives the consumer significantly more flexibility in the types of systems to include in the car,” Sedlik says.
“You need to approach each country in a different way,” adds Marcelo Catapani, global sales director for Quanta, one of the largest telematics hardware suppliers serving the Brazilian aftermarket and increasingly active in Argentina, Colombia and Chile.
Quanta’s growth has relied on adaptability. Cultural differences aside, telematics business models differ by market. In Colombia, for example, mobile network operators play a central role in selling tracking systems. Quanta prefers to sell directly to service providers but will partner with whichever channel best suits a particular market.
Flexible connectivity options
That market-based flexibility extends to connectivity. Quanta’s tracking products commonly include built-in GSM modems and GPS, but the company also offers hybrid units that support GSM/GPRS and include wired antennas for satellite communications. Catapani notes that large transportation fleets often traverse areas with inconsistent coverage, so devices that combine multiple connectivity options are essential.
Providers operating in Latin America must also tailor their offerings to varied use cases, such as navigation. Frost & Sullivan forecasts the Latin American market for dedicated navigation systems at only about 5 million units by 2016, compared with 18.7 million units in North America. By contrast, the research firm expects smartphone navigation subscribers to reach roughly 160.8 million, along with an installed base of approximately 21.4 million telematics service subscribers.
What premium navigation services will persuade drivers to choose paid solutions over free smartphone apps? Sedlik points to the region’s severe traffic congestion. In São Paulo, commuters routinely weave through side streets trying to avoid localized bottlenecks. INRIX is introducing a crowd-sourced, real-time traffic service that enables local drivers to report conditions and help others bypass gridlock—an example of a differentiated service with clear value.
The impact of CONTRAN 245
CONTRAN 245 could provide a meaningful boost to Brazil’s telematics market. Although the regulation applies to new vehicles, Capitano expects it to temporarily spur aftermarket demand as well.
“After the third year, I believe the aftermarket volume will start decreasing,” he says. “Quanta has been preparing itself to offer solutions to OEMs. We are also focused on niche areas, such as hybrid solutions.”
Sedlik adds that embedded tracking devices create opportunities for additional value-added services: “It will be more locked in, but there will also be models that have some flexibility built into them.”
In some cases, security alone will be the primary offered service; in others, vendors will be able to layer on further driving-related services over time, both for OEM-installed systems and aftermarket units. “Once you have a modem in the car, or connectivity through the phone, for stolen vehicle tracking,” Sedlik explains, “OEMs are exploring how they can provide additional services.”
Business model considerations
Which business model will dominate remains uncertain in Latin America, as it does elsewhere.
“OEMs have been struggling with what is the right model,” Sedlik notes. He points out that GM offers a version of OnStar in Brazil, Mexico and other markets through a deployment handled by a partner as it experiments with strategies for moving forward.
Telematics vendors and service providers face growing competition from mobile network operators. While telcos in the United States have only recently entered the automotive market through machine-to-machine (M2M) initiatives, operators such as Telefónica are pursuing aggressive expansion throughout Latin America, according to Catapani.
Telematics penetration within the insurance sector in Latin America is already more extensive than in Europe or the United States, but insurers have mainly focused on theft prevention and vehicle recovery rather than driver behavior analysis. “We are in the beginning stage,” Catapani says. “Insurance companies at this point haven’t started analyzing driver behavior; they are just worried about theft.”
Coverage of CONTRAN 245 is likely to raise consumer awareness and drive interest in a broader set of telematics services, Catapani believes. “I think we have the opportunity to sell products with many more features than we currently do.” He identifies two likely growth areas: expanded insurance products that measure driver behavior (mileage, hard braking, hard acceleration) and fleet management applications.