The auto industry's hopes for huge profits from telematics are receding fast.
Executives participating in the Automotive News Europe Telematics Conference, held on April 22 and 23 in Stuttgart, say that the potential of in-car communications is still unrealized.
They are still searching for the so-called killer applications that will attract customers. And they are also wondering if telecommunications companies will ultimately control telematics in cars.
Meanwhile, executives can't agree whether their products should focus on getting information into the car (such as weather forecasts and navigation) or out of it (remote diagnostics).
In early 2000, before the Internet bubble burst, industry consultants forecast huge revenues from telematics for automakers by mid-decade at the latest. But much of that optimism has faded.
'We haven't found the gold mine yet,' said Didier Cruse, chief strategy officer at Citroen's product marketing department. 'Today, we have no return on investment and are unsure about the forecasts.'
Others agree, including Hans Folkesson, Volvo senior vice president for research and development.
'Income [from telematics] is far away,' he said.
In Europe, only 50,000 vehicles equipped with telematics are on the road, compared with more than 3 million in the USA. Most companies in the telematics supply chain are losing money.
One exception is Delphi's mobile multimedia business line, said General Director Robert Schumacher.
'The real winners have to be Tier 1 [suppliers] and in particular Delphi,' he said. Schumacher predicted that by 2010 telematics will be an integral feature of many European cars.
In December, Volkswagen asked potential new-car buyers to rank their preferences for telematics products. In order, they were: navigation, traffic information, breakdown and emergency services, weather, news and entertainment.
But VW learned customers are reluctant to pay for telematics services. And emergency services are particularly hard to market, as they evoke images of car crashes or mechanical failure.
Another issue: poor quality electronic components. About 20 percent of mobile phones develop faults, said Folkesson. If a faulty mobile phone is integrated into a car, fixing it may take several days at a garage.
'That's a drama,' he said. 'You won't forget it fast.'
Cost is another factor. With telematics demand so low in Europe, automakers have no economies of scale.
'The problem is, people don't want to pay for [telematics], just like for mobile phones,' said Martin Leach, Ford of Europe's vice president in charge of product development.
Fiat Auto's Rajesh Nellore estimates that the buyer of an entry-level Fiat Punto won't pay more than E100 to E200 for a basic telematics system. Nellore recently left his job as Fiat Auto's director of telematics and in-car entertainment to head the Italian carmaker's alternative-fuel vehicles division.
Automakers expect customer preferences to change.
Citroen's Cruse believes telematics' appeal is a matter of age. Many new-car buyers are over 50 and unfamiliar with information technology. In 10 years or so, a new generation will be more receptive to cars equipped with telematics, he said.
Delphi believes in the future of entertainment in cars. Back-seat entertainment such as movies means 'no more 'Daddy, are we there yet?' ' said Delphi's Schumacher.
But Michael Jeltsch, a partner at consultant firm Accenture, is skeptical.
'Just sitting and driving is exciting enough,' he said. Drivers 'don't need to read e-mails or answer the phone.'
For Jeltsch, the challenge is not getting information into the car, but out of it. He said 80 percent of automakers say they'll use telematics to enhance customer-relationship management. Customers could be contacted directly, bypassing dealers.
Automakers can offer personalized communication, remote diagnostics or service scheduling, said Gilbert Heise, head of e-marketing strategy at Volkswagen group. That way, automakers can learn how the car behaves.
'The car interacts directly with the company,' he said. Volkswagen will start offering these services in May 2003.
Fleet management is another telematics opportunity (see story on this page).
Yet technical innovations could radically change the telematics segment.
Voice recognition specialists are looking at the problem of driver distraction. Voice recognition systems that allow a driver, for example, to simply say 'Berlin' rather than fiddle with buttons on a navigation system might appeal to older drivers who don't like new technology.
'A limited form of telematics may exist in the future, not in its current shape or form, but through voice recognition and low driver distraction,' said Fiat Auto's Nellore.
Many automakers and telematics suppliers said greater cooperation would reduce the cost of telematics development. Several alliances will be created by the end of the year, said Friedrich Christeiner, IBM general manager for global telematics solutions.
Telematics consultants say automakers should hurry. They warn that telecommunications companies are developing their own 'portable' solutions that could shut automakers out of the revenue stream.
'If car manufacturers don't move fast, telecommunications companies will,' said Bruno Bourguet, vice president of Webraska Mobile Technologies.
Manufacturers are more cautious.
'Nothing is urgent,' said Citroen's Cruse. 'Now is not the time to launch a big, multi-year project. We need customer feedback.'
- Edmund Chew contributed