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Telematics opportunities in Brazil and LATAM, part II

Jan Stojaspal reports on the growing telematics opportunities in the emerging markets of Brazil and Latin America

The telematics industry is now cautiously optimistic that Contran 245, Brazil’s ambitious plan to stem vehicle theft by having all new vehicles equipped with tracking modules, is on track for implementation.

The legislation could make Brazil one of the biggest telematics markets in the world, both for tracking modules and value-added services, ranging from basic track-and-trace required by the legislation to advanced concierge services, fleet management and insurance telematics. Vehicle tracking is already in wide use by local insurance companies, but it typically only covers mid- to high-end vehicles or high-value cargo. (For more on Contran 245, see Telematics in Brazil: Ensuring security for cars and cargo, Telematics in Brazil and LATAM: Going beyond GPS, and Telematics in Brazil: The law of the market.)

Contran 245 gets off the ground

The core infrastructure underpinning the Contran 245 system is up and running and live testing is under way to verify its ability to perform tracking and immobilization functions, as well as to host a variety value-added services that use the tracking module as a gateway to the car.

With testing scheduled to conclude at the end of October and around three months needed for hardware manufacturers to fill orders for new tracking modules, Antonio Calmon, who was responsible for writing the Contran 245 technological specifications and whose company, Kaitech Consulting, now advises a number of car makers on how best to implement them, estimates that Contran 245 could get off the ground as early as the first quarter of next year.

Car makers realize they can save millions of dollars in warranty repairs by offering remote diagnostics as part of the service package, just as they have understood that they can use alliances with service providers to cultivate customer loyalty and to add to their own bottom line through revenue sharing.

“When the project started, the only group that was involved from the car manufactures was the engineers,” Calmon says. “Finally, in the past 12 months, the marketing guys … started to be involved. Since then, the discussions are much more about finding the perfect business model to support the applications.”

Recent partnerships include a deal between Ford and Brazil’s Autotrac and an agreement between General Motors Brazil and Ituran for the US car maker to offer Ituran’s immobilization, location and telematics services to its Chevrolet customers.

Concerns about the sticker price of new vehicles from the National Association of Motor Vehicle Manufacturers in Brazil (ANFAVEA), whose members accounts for 13% of the country’s GDP, were allayed by the emergence of a variety of subscription-based business models that will subsidize the cost of the tracking module, much like mobile carriers subsidize the purchase of new phones.

Track-and-trace functions

Once Contran 245 is implemented, the initial focus will most likely be on activating as many vehicles as possible with basic track-and-trace functions. Still, a growing number of content providers, including INRIX and TomTom, are already jockeying for position to provide data feeds for added-value services to drivers.

In May, TomTom announced an expanded partnership with Brazil’s Digibase as part of its effort to solidify its position in Latin America. Under the agreement, Digibase will act as a local reseller for TomTom’s maps and points of interest, offering them to anyone interested in building location-based services, including navigation and geocoding.

In June, INRIX announced an exclusive partnership with MapLink, the leading provider of traffic and location-based services in Brazil. INRIX will integrate MapLink’s data for more than 10,000 kilometers of roads into its traffic intelligence platform, providing local drivers and governments with real-time and predicative traffic services.

According to Frederico Hohagen, founder and business director of MapLink, traffic information is key as Brazil tries to bring relief to its perpetually snarled metropolitan areas by regulating traffic and building new infrastructure.

“Traffic information is not just going to be important for the end users to take a look at the map and see, ‘It’s all red. I am screwed,’” Hohagen says. “It’s going to be very important for the governments who organize the cities and the roads.”

Market conditions

There is no doubt that SãoPaulo, the largest city in Brazil, can use all the help it can get. On May 23, a subway strike there was responsible for a 452-kilometer traffic jam that turned a 45-minute trip into a 4-hour ordeal. And that was not the worst of the year. According to Hohagen, a traffic jam in the run-up to the Carnival made more than 600 kilometers of roads virtually impassable for hours.

In many ways, market conditions could not be better for the types of services INRIX offers, says Scott Sedlik, the firm’s vice president of marketing. “With Brazil being the fourth largest [automotive market in the world] and growing, a significant middle class and upper class, and then the traffic issues on top of it, it’s the perfect storm for INRIX,” he says.

With 5.6 million vehicles sold in Brazil annually and 3.8 million subscriptions projected for the first year of Contran 245’s implementation, Christiano Blume of Volvo Group Telematicsestimates the initial business opportunity at as much as $1 billion. He also thinks it will have a significant spill-over effect into other Latin American countries.

According to Latin American Vehicle Tracking Systems Market Study 2010-11 Editionfrom Driscoll & Associates, the number of vehicles in Latin America is expected to surge from 77 million in 2010 to 120 million in 2030. Revenue from fleet management systems and stolen vehicle tracking/telematics is expected to grow from $1.43 billion in 2010 to $3.63 billion by 2014, according to data from Driscoll & Associates and the World Bank. (For more on fleets, see Special report: Fleet telematics.)

Other market opportunities

Brazil and Mexico may dwarf everyone else in market size and saturation, accounting for 60 percent of the roughly one million vehicles equipped with GPS fleet management solutions, the Driscoll & Associates study says. More than three million vehicles feature stolen vehicle recovery or other telematics solutions. But other markets also present significant opportunities. (For more on other LATAM telematics markets, see Telematics in Latin America: Getting ready for infotainment, Telogis: How to "drive that growth" of telematics in LATAM, and Quanta: LATAM “customers are focusing on more complex applications”.)

According to Marcel Patrick Shimabukuro, industry analyst for Latin America, Automotive and Transportation, Frost & Sullivan, a global growth consulting company, both Mexico and Chile are embracing latest transportation technologies, including electric mobility, and are much cheaper to import to than Brazil.

Argentina may eventually upstage Mexico as the number two telematics market in Latin America, but current economic turmoil and the recent nationalization of YPF, the biggest oil and gas firm in the country, has put foreign investors on guard.

Venezuela also continues to be regarded with caution, despite the size of its oil and gas industry and substantial investments in infrastructure. “People are still afraid to make large investments there, fearing the government will send the troops to expropriate their assets as it did a couple of years ago,” Shimabukurosays.

For Brazil the biggest current concern is slowing GDP growth, the country’s heavy dependence on commodity exports to China, and the appreciation of the Brazilian real against the US dollar. While this may weaken consumer demand for new services when Contran 245 is implemented, it is unlikely to cause another major delay.

Jan Stojaspal is a regular contributor to TU.

Read Telematics opportuntiies in Brazil and LATAM, part I.

For more on the LATAM telematics market, see Special report: Telematics and emerging markets.

For more all the latest telematics trends in LATAM, check out Telematics Brazil & LATAM 2012 on Sept 12-13 in Sao Paulo.

For exclusive telematics business analysis and insight, check out TU’s reports on In-Vehicle Smartphone Integration Report and Human Machine Interface Technologies.

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