Automotive consumers are fundamentally shifting their view of the automobile from a product to a mobility solution that delivers seamless connectivity and a consistent omnichannel experience including excellent aftermarket services. These trends will require automotive original equipment manufacturers (OEMs) to shift their retail pricing from a product to customer-centric approach. Developing multivehicle branded mobility solutions with integrated telematics to provide consumer-specific connectivity options and predictive aftermarket services will become a market necessity to maintain brand loyalty.

1. Pricing the future
automotive retail market
Connectivity
Automotive consumers are fundamentally shifting their
view of the automobile from a product to a mobility solution
that delivers seamless connectivity and a consistent omni-
channel experience including excellent aftermarket services.
These trends will require automotive original equipment
manufacturers (OEMs) to shift their retail pricing from a
product to customer-centric approach. Developing multi-
vehicle branded mobility solutions with integrated telematics
to provide consumer-specific connectivity options and
predictive aftermarket services will become a market necessity
to maintain brand loyalty. These retail channel and product
improvements will increase development costs, but also
present opportunities for incremental revenue generation and
cost reduction not previously available. As the automotive
market continues to evolve toward a customer-centric
mentality, OEMs must adapt their pricing strategies to take
full advantage of this changing landscape and rethink their
historical pricing structures in order to effectively profit and
grow in the future.
This paper will focus on the connectivity that consumers are
increasingly demanding in the automotive retail marketplace.
Connectivity
Omni-channel
and aftermarket
services
Mobility solutions
Business impact
As automobiles become more connected,
consumer demands for improved
convenience from these connectivity and
telematics features will only increase,
requiring OEMs to continually improve
their automotive technology to match
the evolving marketplace. While these
improvements require escalating research
and development and manufacturing
costs, they provide a direct communication
channel with the consumer, opening
additional revenue streams and market
research opportunities not previously
available. Taking advantage of these new
revenue streams and market data will be
critical for automotive OEMs going forward
as new vehicle sales profits continue to
decline. However, effectively leveraging the
incremental value derived from improved
connectivity must be carefully balanced
with maintaining a consistently positive
consumer brand experience.
Revenue from improved vehicle connectivity represents
$2.1 trillion in value
Automotive executive survey on in-vehicle features and
functions such as connectivity
73% 43%
Expect demand for in-vehicle
features/functions supports
their value proposition
Feel well-prepared to
provide these features
$500b
$900b
$700b
Person-to-person: Value from the design and delivery of
smart vehicles
and apps/services for connected vehicles
Sources:
• Multichannel distribution — key success factors for automotive dealerships and captives, EY, 2014
• ©2013 Copyright Cisco white paper “Embracing the Internet of Everything To Capture Your Share of $14.4 Trillion”
• Changing lanes, EY, 2015

2. In order to maintain their retail relevance and profit
margins, automotive OEMs should expand their
telematics features and leverage them to collect vehicle
performance data. This information can be used to
continuously improve energy management and other
features with incremental updates automatically
downloaded directly to the vehicle. The increased
connectivity to the vehicle will also allow OEMs to
establish direct communication channels to vehicle
owners and introduce proactive value-added services
tailored to their preferences. The relative success of
these services can provide customer-specific insights
and be utilized to develop additional services that can
be piloted immediately to receive real-time consumer
reviews for future development guidance.
To expand these services, automotive OEMs should
enter into agreements with non-vehicle app/service
organizations to develop XaaS (Anything as a Service)
value-adds promoted in-transit, directly to the consumer.
All promotions should be tailored to specific consumers
based on their unique data in order to fully customize
their driving experience. Automotive OEMs will need
to continuously monitor their level of in-transit value-
added service promotions in order to properly balance
incremental revenue generation with maintaining a
positive brand experience.
Current trends
• Establish robust product development processes for connectivity
platforms and solutions. Separate connectivity solution
development from vehicles to allow for progress at the speed of
competitive technology alternatives
• Decouple purchase decision of connectivity solutions from vehicle
to enable separate pricing architecture more aligned with the
expected technology-buying experience
• Identify in-vehicle service application development partners
for non-vehicle promotional apps/services; negotiating pay-
per-use fees and app features that align with the overall brand
pricing strategy
• Leverage consumer data to perform conjoint analysis on
connectivity and telematics features to determine which should be
provided gratis and which should require incremental payments
from the consumer post-purchase
Pricing considerations
Future implications
Automotive telematics and connectivity value drivers
Cost reduction
• Predictive defect detection
• Energy management
• Smart factory automation
Productivity improvement
• Remote smart service updates
• Dynamic service and maintenance
• Real-time supply chain and
operations alerts
Incremental revenue
• Customized offers
• XaaS models
• New smart services
Want
to know
more?
Hanno Lorenzl
Principal,
Performance Improvement
Ernst & Young LLP
+1 312 879 2674
hanno.lorenzl@ey.com
Stephen Nyquist
Executive Director,
Performance Improvement
Ernst & Young LLP
+1 312 879 3816
stephen.nyquist@ey.com
Daniel Bracke
Manager,
Performance Improvement
Ernst & Young LLP
+1 312 879 3879
daniel.bracke@ey.com
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a year for the next several
cars will be connected to
the internet
Number of networked cars
will rise
104 million 16 million
By 2016, the in-vehicle
infotainment market size
is expected to reach
$41.2 billion
new cars will
have some form
of connectivity
with a globally
integrated telematics
penetration rate of 88%
new cars
will be sold
in the US
with
embedded telematics
By 2025
Sources:
• Changing lanes, EY, 2015