What will you pay to stay connected in your car?
Car shoppers over the next few years will find ever-expanding features that can give them more entertainment plus information about navigation and problems with their vehicle. But at what cost? Actually, competition will hold down the prices of these higher-tech vehicles, according to a report released today by management consultants McKinsey & Co.
The market for connectivity features will grow by 30 percent a year between now and 2020, the report projects, with bruising competition among automakers, telecom companies and smartphone suppliers like Apple (AAPL) and Google (GOOG).
The report projects a repeat of the trend between 2000 and 2010 when net transaction prices for cars sold didn't rise despite a strong increase in standard features like power windows in almost all cars. "Some features like built-in navigation could even decrease in price because of competition with smartphones, which already have easy-to-use navigation now," said Hans-Werner Kaas, head McKinsey's auto practice and lead author of the report.
Kaas estimated that the average total five-year ownership cost for a vehicle, including purchase price, will remain flat between now and 2020.
For the report, McKinsey surveyed 2,000 new-car shoppers in the U.S., China, Brazil and Germany about their needs and preferences for connectivity features in vehicles they drive. In addition, researchers interviewed executives of automakers and other companies. Some of the findings:
- Even in less expensive small and midsize cars, buyers now expect to find features like Bluetooth connectivity for their phones, the ability to use music sources like Pandora (P) and satellite radio and easy-to-use touch-screen controls. "Consumers have started to scream when they don't get the content they want," an auto executive dealing with infotainment systems told the consultants.
- Motorists under 35 care especially about connection features in cars they would consider. In the McKinsey survey, 65 percent of shoppers ages 18 to 34 said connectivity was very important to them. Automakers already are responding to this demand among less-expensive cars (see "7 Tech-loaded cars for under $20,000").
- About 20 percent of shoppers surveyed said they would be willing to switch automotive brands for better connection features. Among motorists who spend more than 20 hours a week in their cars, that rose to 41 percent. Among users of Apple iPhones, 27 percent said they would switch brands if that meant they could get full access in the car to all the phone's apps and data.
In projecting future developments, the McKinsey report predicts the spread of vehicle diagnostics, where the auto company can monitor a car's condition remotely and notify the owner of the need for maintenance or repairs. General Motors (GM) already sends a monthly email with such information to subscribers of its OnStar service.
GM also is introducing a feature for 2015 that can turn your car into a rolling WiFi hot spot with access for up to seven devices.
With consumers expecting more and more features to be standard, the quest for businesses is to come up with a "killer app" that's so attractive drivers will pay extra for it. McKinsey's Kaas thinks it might be a service that gives you real-time traffic, weather and road condition information. "Let's say you're in Wisconsin in a winter snowstorm and you need to drive to Chicago," he explained. "The app would show you the safest way to go."
