THE promise of connected cars is no longer science fiction. It is fast becoming commonplace for luxury cars in more developed markets.

Now, what technology and automotive players are trying to figure out is when the technology will become ubiquitous.

Sure, the technology has existed for a long time and the value proposition is clear. But when will all this come to a tipping point?

Nobody can say for certain except that when the tipping point is reached, there will be a huge demand for such cars.

Fast Aid Holdings Sdn Bhd managing director R Nanda Kumar, for one, believes Malaysia will see a big rollout of connected cars in the near future.

Fast Aid Holdings and its technology partner are working with a local automotive manufacturer to implement a smart “black box” technology in mass market vehicles. The deal has been in the works for some time now, and it is understood that other car manufacturers have also been considering the rollout.

“When exactly it will happen, we do not know, except that it will be soon. This is coming and in a few years’ time it will be the norm. Right now, it all depends on two things: pricing and acceptability,” says Nanda.

His remark underscores two major questions that still stand in the way of rolling out vehicle telematics in a massive way.

The first, and the most obvious, concern about this technology, is privacy and data security.

Sure, it will be useful to track a car that has been stolen. But how many consumers are willing to have their whereabouts tracked and logged around the clock?

In all discussions of Internet of Things (IoT) and connected cars, concerns over data security and privacy invariably arise. Who owns the data? Who can use the data and for what purpose? Can the data ever be erased? What is more, hackers have been shown to be able to gain control of a connected vehicle.

At this point, there are many questions and few answers. There is currently no agency that regulates data generated from connected car systems, given that this is still in a nascent stage.

The next question concerns cost: who wants to pay for a device that can cost anywhere from hundreds to thousands of ringgit?

Industry sources say car manufacturers are reluctant to include a telematics system if it impacts their pricing and margins.

“Yes, this is all very good but we worry that consumers won’t want to fork out the extra money for it. Don’t forget that car prices in Malaysia are already high and this is a very price-sensitive market that we are dealing with,” says one industry insider, who is familiar with automotive manufacturing.

“I doubt anyone wants to do anything that impacts their margins. This year is looking tough as well,” he adds.

The reluctance is understandable since last year was an intensely difficult time for the domestic automotive sector.

Total industry volume fell 14% year-on-year to 575,000 units, which Maybank Investment Bank Research says was the steepest fall seen in the last 15 years.

The research house, however, is forecasting a 6% y-o-y recovery to 610,000 units this year.

Maybank Investment Bank Research, in its outlook note for 2017, warns that the automotive sector faces the risk of weaker demand following price hikes, margin contractions from further ringgit weakness, and potential tightening of hire-purchase financing guidelines.

However, one of the things that car companies find attractive is the promise that telematics technology can help increase sales and offer new revenue streams.

For one, if a vehicle can always be tracked, banks would be more comfortable in approving hire-purchase loans, secure in the knowledge that an asset can be tracked and recovered, says a person familiar with the connected cars business.

“Better approval rates for loans will increase vehicle sales. That’s what the carmakers are looking at. Sometimes, banks are scared to lend money to people. What if, after three months of paying instalments, the car just vanishes?”

Carmakers are also told that they can develop new in-car services using the technology and reap new revenue streams. There is also supplementary income for car manufacturers’ service centres when owners bring in their vehicles for maintenance and upgrades.

The next question is, if car owners are made to pay for this technology, will it be optional or compulsory? Malaysia has certainly not reached the stage where insurers will make it mandatory for car owners to have a tracking device or for banks to make it a condition for loan approval.

Yet, vehicle telematics has piqued the interest of insurers and banks alike.

It is learnt that several major car insurance companies in Malaysia are looking into telematics devices and solutions.

Sources say this could be due to the push by Bank Negara Malaysia with its phased liberalisation of motor and fire insurance intended to spur more innovative products for the market.

Insurtech is certainly one area that is useful for vehicle telematics.

Take CKL Holdings Sdn Bhd’s startup, Blue Labs Group Sdn Bhd. The latter has come up with a next generation device that can transmit data via an embedded SIM card.

Devices like this can enable insurance companies to create innovative products, including user-based insurance plans or pay-as-you-go insurance plans that are already in place in many developed markets.

Armed with driving data and background information, insurance companies can tailor policies and premiums based on an individual’s risk profile. The thinking is that a consistently fast driver with a history of accidents should be paying a higher premium than a safe driver who has never had an accident or a driver who does not use the vehicle often.

CKL Holdings director Clement Lim says he has spoken to several insurance companies on the potential for collaboration. But there is some reluctance to move in this direction.

“We told them we have a product that can fit into their strategy. You can see it [connected cars] coming. You need something that actually works.

“They know all about that, but it all comes back to who is going to pay for it. You can see the land but you can’t see the bridge to get there yet. That’s my challenge right now. No one wants to be the first to take the plunge,” Lim says.

For now, the technology is ready but it is still a waiting game.

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