GM expects LTE connections will boost profitability, but that’s probably premature.
General Motors says it expects to make $350 million (U.S.) in improved profits over the next three years thanks to connected cars, marking the first time an auto maker has made such projections public.
E-commerce transactions made through in-car systems, automatic ordering options with fast-food outlets and software updates that cut down on repair expenses will add up to this improved profitability, the company said in a recent presentation to investors.
All of these new revenue streams or cost savings will be made possible by 4G LTE OnStar wireless connectivity, which GM plans to roll out in the majority of its 2016 vehicles.
Analysts figure the company’s projections are actually on the low side. IHS believes GM could add about $439 million in profit over the same three-year time period, while Gartner thinks auto makers will be earning up to 10 per cent of their revenue from connected services by 2020. The firm also believes 80 per cent of all cars will be connected by then.
There are a couple big caveats, though. The first is the question of whether consumers will be willing to pay extra for something they’re already getting through their smartphones. Why pay extra for another connection when just about anyone in the car can access the same goods and services through their own device? Even software updates to the car could be piped through a connected smartphone.
The second issue is how intuitive and sleek the in-car services will be. Will they be any easier to use than iPhones and Android devices?
The first issue evokes the phenomenon of smartwatches, if we can call it that, which have so far failed to spark much interest simply because they don’t do much that smartphones don’t. The second issue could see cars end up like smart TVs, where hardware makers unskilled in software design have created functions that few people want or use.
Connected cars are an intriguing idea, but auto makers have a lot of work to do in convincing consumers that they’re of value. Making profit projections is probably premature at this stage.