Why Connected Services Are the Route to Profitable OEMs

  • February 17, 2023

In recent years, most Original Equipment Manufacturers (OEMs) have launched mobile apps for their brands, with the intent of driving loyalty, dealer satisfaction and revenue generation opportunities. 

Each year, connectivity features in mobile apps for cars are increasing in scope and capability. It is now fairly common to see features such as lock/unlock, start/stop, find your car, climate control, odometer and gas level introduced as standard in car deal packages. More recently, in-app advanced features such as parking assist and autonomous self-parking have been introduced. This focus is understandable as it affords OEMs a direct line of communication with their customers that did not exist before, while also giving customers a feeling of control and enhanced customer experience. Mobile app and function usage provides OEMs valuable feedback for improving the customer experience in newer models and determining what customers find valuable, helping OEMs go to market faster using data-driven insights to make predictions and inform product and experience.

Visual representation of feature and digital delivery channels for OEM car apps

Connectivity and convenience across channels 

It is important to understand how connected features are realized by OEMs and how they can be accessed by the car owners. Automakers are distinguishing features that can be accessed directly from vehicles (e.g., OnStar and SafetyConnect) vs. features that are accessible via mobile apps or web applications. The diagram shows high-level categories of the various connectivity features and the channels they can be accessed from.

Simply put, by leveraging connected services, automakers are looking to enhance the convenience and experience factor such that customers will be willing to pay more for that additional value. Each channel introduces a new layer of convenience for drivers and can in turn be monetized by OEMs.

Connected services: Are they delivering on revenue expectations?

Automakers have announced ambitious revenue goals for their connected services. GM, Ford and Stellantis are expecting to generate upwards of 20 billion USD by 2030. Other OEMs are chasing equally ambitious goals commensurate with their size and scale.

A recent study conducted by Publicis Sapient in the U.S. indicates that OEMs are largely focused on subscription as a revenue source. The study mainly looked at apps rolled out for luxury car models, as buyers for this segment often get to experience new features and conveniences before they trickle down to the mass segment. However, these buyers—having paid a large sum upfront for the car—tend to be put off by the expectation of paying even a small amount on a recurring basis. In other words, the subscription model is not very popular with consumers and is only compelling when there’s a substantial value add presented.

So, the question is: Is subscription revenue alone enough to help OEMs meet their revenue goals?

Simply providing more and more digital capabilities to car owners is not enough. OEMs need to think about the Post-Digital Era and focus on leveraging the overall ecosystem of dealers, finance & insurance (F&I) partners and other stakeholders vis-à-vis their connected services investments to create value for all stakeholders and increase revenue in this space.

Unlocking revenue opportunities beyond the subscription model

So far, the mobile app and connected features evolution has been focused on the end customer and driver experience. This has helped set the foundation for the connected ecosystem. Now, it’s time to look at other stakeholders in the automotive ecosystem and leverage partnerships with them. Here’s a look at the possibilities that have potential to be monetized and generate value:

revenue opportunities infographic showing the relationship between OEMs and other automotive stakeholders

Harnessing the value of connected data with stakeholders across the automotive ecosystem

Finance Companies:
  •  Pitching insurance/warranty coverage products at the right time (based on vehicle data and projected maintenance needs) will help finance companies increase the sale of its coverage products.
  • Finance companies can leverage vehicle location data for repossessions. For delinquent loans, when the vehicle cannot be located at the last known address to the finance company, the cost of repossession tends to escalate exponentially. OEMs can partner with finance companies for repossessions (where appropriate customer authorizations are in place) by providing real-time car location data for a fee.
  • Contextualized interactions such as predictive maintenance alerts and occasion- and location-based suggestions will indicate improved engagement between the customer and OEM.
  • Any offers that meet the customers’ incidental needs at a discount, such as oil changes or tire replacements, will be appreciated by customers.
  • In addition to providing a convenience to customers, maintenance alerts can generate high-quality leads to dealers for a fee, addressing dealership concerns about utilizing personnel and facilities as well as selling parts.
  • As the selling agents for the finance companies, dealers will also gain from the sale of insurance/warranty products via the mobile app ecosystem.

The key opportunities for the OEM are enormous:

  • Revenue generated from finance companies and captive lenders for selling their insurance products
  • Fees secured from providing real-time location data
  • Increased sales as data from vehicle usage can be analyzed to determine lifestyle needs and identify upgrade opportunities
  • Increased dealership traffic and customer touchpoints from maintenance appointments scheduled via connected services
  • Increased parts sales as customers are routed to dealerships for maintenance, where parts are generally sourced from OEMs
  • Increased loyalty and brand perception through improved customer engagement

The time to invest in connected car services is now

Mobile apps and the connected services ecosystem together offer a multitude of revenue-generating opportunities for OEMs beyond subscription fees. OEMs will need to start investing in these opportunities now to meet their ambitious revenue goals from connected services.

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