Telematics Growth Curtailed, Says Frost & Sullivan

By Amy Gilroy On Jul 26 2004 - 6:00am

A new study from Frost & Sullivan found that telematics is not growing as rapidly as predicted, and that it may peak at a penetration level of 25 percent of new vehicles.

The new study from the research group based here also said that only 43 percent of those who purchase new vehicles with telematics (such as General Motor's OnStar) renew their annual subscriptions to the service. "Once envisioned as the 'next big thing,' expectations for the telematics industry have been revised down since the dot-com bust," said Joerg Dittmer, analyst for Frost & Sullivan's Transportation Group.

General Motors, however, disagreed with the findings. A spokesman for OnStar said, "Our internal research tells us that our retention is above 50 percent and continuing to grow. We have over 2.7 million subscribers now. In terms of our own research, nearly 80 percent of our subscribers say they recommend OnStar and would only purchase an OnStar-equipped vehicle for their next vehicle."

The study also asserts that telematics is still a viable market. Even if it reaches only 25 percent of new cars, "that could take the market to about 4 million units per year," Dittmer said. The study, entitled "North American Passenger Vehicle Telematics and Remote Vehicle Diagnostics Market," said the telematics installation rate was 12.1 percent of vehicles in 2003, expected to increase to 22.6 percent in calendar year 2010. The renewal rate is also expected to increase.

Hampering the market growth thus far is the high cost of hardware, at $695 and above, and high annual subscription fees of $200 after the initial year of service. In addition, the study found that many vehicle buyers are not aware of telematics. Of those customers who buy a vehicle with telematics as standard equipment, 20 percent to 30 percent do not bother to activate their systems, said Frost & Sullivan.

Telematics is growing mainly because some automakers are including it as standard, said the report. Currently, GM offers telematics on about 50 vehicle models, Mercedes-Benz offers it as standard on all but one of its models and BMW offers it standard on 5-series and 7-series models and as an option on all other models, said Frost & Sullivan.