Ja­pan may be look­ing at an­other ‘Gala­pa­gos’

The National - News - - IN DEPTH BUSINESS -

In the race to build cars with dig­i­tally con­nected ser­vices – such as or­der­ing cof­fee on the dash­board dis­play – Toy­ota and Nis­san risk be­ing held back by their home mar­ket.

In con­trast to ve­hi­cle buy­ers in the US and Europe, Japanese con­sumers are re­luc­tant to pay for such fea­tures.

That’s re­sulted in only 10 per cent of cars on Ja­pan’s roads hav­ing em­bed­ded con­nec­tiv­ity, com­pared with 49 per cent in the US, 31 per cent in Europe and 20 per cent in China, ac­cord­ing to con­sul­tancy SBD Au­to­mo­tive.

The threat to the Japanese car mak­ers – which con­trol al­most all of their home mar­ket – is that com­peti­tors pull ahead as global de­mand for con­nected ser­vices keeps in­creas­ing. Ri­vals, in­clud­ing Gen­eral Mo­tors, are bet­ting on con­nec­tiv­ity for new rev­enue streams as buy­ers in the US, Europe and China em­brace on-board shop­ping, en­ter­tain­ment and cus­tomised coupons.

“For Japanese car mak­ers there’s a big risk,” says Masanori Mat­sub­ara, a se­nior an­a­lyst at IHS Markit. “They have to com­pete on a global level with the Detroit Three and the Ger­mans, which have ex­pe­ri­ence and have built the ecosys­tem and ser­vice plat­form.”

In­stead of choos­ing con­nec­tiv­ity ser­vices built into the dash­board, Japanese driv­ers pre­fer to hook up their smart­phones to the car’s sys­tems to, for ex­am­ple, lis­ten to streamed mu­sic. That means the data flows through the smart­phone provider, typ­i­cally Ap­ple or Google, deny­ing the car com­pa­nies a mas­sive op­por­tu­nity.

The data gen­er­ated from smarter and con­nected cars will cre­ate a mar­ket as big as $750 bil­lion by 2030, ac­cord­ing to an es­ti­mate by McKin­sey & Co. SBD Au­to­mo­tive pre­dicts that two-thirds of cars in the US and Europe will have con­nected fea­tures in 2020. In Ja­pan, such ser­vices will be in less than a third of ve­hi­cles that year, the con­sul­tancy fore­casts. “There needs to be cus­tomer pull,” says Lee Col­man, an an­a­lyst head­ing con­nected-car re­search at SBD Au­to­mo­tive. “The car mak­ers don’t want to of­fer those ser­vices un­less they know the cus­tomers will ac­tu­ally tick ‘yes’ in the op­tional box.”

The risk is akin to what hap­pened to mo­bile phones a decade ago, when Japanese brands missed an in­dus­try­wide shift to smart­phones. While flip phones have al­most van­ished elsewhere, they still have a re­mark­able pres­ence in Ja­pan as they meet ba­sic-us­age needs and are easy for el­derly con­sumers. The phe­nom­e­non has be­come lo­cally known as “Gala­pa­gos”, af­ter the is­lands with dis­tinct flora and fauna, and flip phones are also now re­ferred to by that name.

In con­nected ser­vices, GM is the undis­puted leader af­ter pioneer­ing its OnS­tar sys­tem in Cadil­lacs in 1996.

Ini­tially de­signed for emer­gency and se­cu­rity pur­poses, OnS­tar now al­lows driv­ers to re­serve a restau­rant ta­ble and sug­gest dis­counted rates at a nearby ser­vice sta­tion through the dash­board in­fo­tain­ment sys­tem. GM doesn’t break out fi­nan­cial re­sults for OnS­tar, but the unit has been prof­itable for a long time, ac­cord­ing to peo­ple fa­mil­iar with the mat­ter.

In China, Lynk is among lo­cal brands tout­ing their lat­est con­nected fea­tures at the Beijing In­ter­na­tional Au­to­mo­tive Ex­hi­bi­tion that kicks off April 25. Li Shufu, the bil­lion­aire owner of Volvo Cars, un­veiled the Lynk mar­que last year to tar­get ur­ban young buy­ers with al­ways-on in­ter­net and in­stant ride-shar­ing with the push of a but­ton.

The EU is mak­ing con­nec­tiv­ity manda­tory for safety pur­poses, re­quir­ing new cars to be equipped with tech­nol­ogy called eCall start­ing in April. In the event of a se­ri­ous ac­ci­dent, eCall au­to­mat­i­cally sends emer­gency ser­vices to the ve­hi­cle’s lo­ca­tion.

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