European automotive

Who will make money from the connected car?


A recurring theme at this year’s AFC Summer conference was the changes facing the auto finance ecosystem, with Tony Whitehorn, former president & CEO of Hyundai Motor UK, discussing the concept of the connected car and how its development will change the future of the automotive industry.

Over the past 10 years, the automotive industry has gone through a period of immense upheaval. Traditional business models, supply chains and market players are all being challenged by a wave of new models and ideas and new entrants that are shaking up the market.

Connectivity is expected to be the defining feature of ‘the car of the future’ and will revolutionise the way in which we travel from A to B. The connected car will be made up of an ecosystem of connected technologies which will enable it to transfer and process large amounts of data.

“Back in 2020, 45% of all cars that came into the UK had some degree of connectivity. Today, it is over 90%.”

Whitehorn highlights that there are three levels of connectivity:

1) The car as an enabler – the car is fitted with the hardware to allow it to produce and communicate data.
2) The OEM as an issuer – the OEM adds a payment facility to its cars.
3) The OEM as an acquiror – the car becomes an entire payment method, and this is where serious money can be made by the OEM as they own the whole payment system. This is what the OEMs want to achieve but that is not going to happen at the very outset, especially when they are up against GAFA (Google, Apple, Facebook/ now Meta and Amazon).

As Whitehorn points out, the OEMs know that they have to start with the car as an enabler, otherwise the move to the OEM as an issuer and finally to the OEM as an acquiror will not happen.

When we discuss mobility, it is simply the frictionless movement of people, notes Whitehorn. And the biggest issue today causing friction is the driver having to get out of the car and pay for products or arrange services in advance. Once you have connectivity and you add an in-car payment tool, then the friction disappears and the journey becomes frictionless.

Connected cars can provide this unique frictionless customer experience while simultaneously delivering cost and revenue benefits to mobility companies, including OEMs, suppliers, dealers, insurers, fleets and technology companies.

“On the pure connectivity side, the connected car gives you information, it gives you a better journey, and people are willing to pay for that better customer experience.”

However, the connected car can be extremely costly for OEMs. In recent times, OEMs margins have shrunk massively, mainly due to the huge investment in connectivity and electrification, and the OEMs need to accrue some of this investment back. And connectivity is a way to do this.

Using connectivity, the OEM can monetise the customer’s journey by monitoring what the driver uses and doesn’t use, and therefore can reduce their costs by only adding specifications to the car that the customer wants and needs.

While OEMs see significant revenue potential in connectivity, there have been a number of recent examples of consumer resistance; for example, in South Korea where BMW offered heated-seats subscriptions to disgruntled drivers whose new BMWs included seat heating as standard.

While automotive connectivity is changing faster than ever and significantly increasing the potential for data monetisation for players across the ecosystem, the 2021 McKinsey report, Unlocking the full life-cycle value from connected-car data, believes that it is data suppliers, such as OEMs and vehicle fleets, who are well positioned to benefit, along with insurance players, companies in the automotive aftermarket, cities, infrastructure providers, and other data customers. However, the Report urges all stakeholders to act fast, “given the industry’s current underperformance on data monetisation, new players with innovative approaches could rapidly gain an advantage over slower-moving incumbents.”


When monetising data, there is a big debate raging about who actually owns the data, with legislation lacking around how the data can be used.

The customer who is paying for the hardware is not monetising the data, according to Whitehorn. They get a good customer experience, and that is essentially what they are paying for when they get greater connectivity.

On the other hand, Whitehorn believes that it is the most traditional automotive players — OEMs — who actually own the data. But in the current landscape, it is the OEMs who may find staking a claim in car data monetisation most challenging. Car data monetisation will challenge all of their current realities — such as product cycles, control over the value chain, consolidated monetisation models, and limited interaction with the end user — and lead them to quickly make changes to their approaches.

As the McKinsey Unlocking the full life-cycle value from connected-car data report confirms, “OEMs are well positioned to monetise their direct customer access and data, since very few companies have such regular and extensive interactions with their end customers. Despite the potential, many OEMs have only scratched the surface when monetising data, and their efforts often fail because they provide a poor customer experience and encounter execution issues, resulting in low retention.”

Software vs. engineering companies

As the connected car has evolved, traditional OEMs have found that they do not have all the technological expertise or experience to develop and implement all of the necessary technologies themselves. This has therefore opened up what was a relatively closed market to a wave of new entrants.

The industry is now made up of a diverse group of players, including start-ups, industry stalwarts and telecommunication companies. However, the greatest threat to the OEMs is probably that posed by the tech giants, such as Apple, Google and Microsoft, who are investing in automotive innovation. These companies have the resources, reputation and knowledge to shake up the automotive industry.

But we will wait to see if these tech giants will be able to convert their technological innovation into commercial success.

“The greatest threat to the OEMs is probably that posed by the tech giants, such as Apple, Google and Microsoft, who are investing in automotive innovation.”

Whitehorn highlights Tesla as an example of a software company expanding into the vehicle market.

For auto OEMs, building and operating service businesses is a new significant challenge. Pushing beyond the basics and making all channels “digital ready” is going to require a fundamental shift from the current ways of working at a traditional automotive organisation that may be less conducive to the digital innovation required to succeed in car data monetisation.

The OEMs are not masters of technology; they are engineering companies. And they are steeped in the legacy of being an engineering company, not a digital software organisation. The challenge for the OEM is to transition from being an engineering company to a service company. As Whitehorn notes, the OEMs do not have the “culture” or specific digital skills which hinders their ability to innovate like the high-tech players who they are competing against.

With the connected car, the OEM needs to have the infrastructure of a traditional auto engineering company, the software and digital skills of a tech giant and an in-car payment system from a payment provider. They therefore need to create partnerships to gain the necessary components.

Volkswagen recently announced a tie up with J.P. Morgan to deliver such payments services. J.P. Morgan expects that the connected vehicle, the digital payments experience and customised payment services will all become core features of business models in the future. “Auto payments encapsulate many of the characteristics of the wallet of the future,” added Max Neukirchen, Global Head of Merchant Services at J.P. Morgan.

The role of the dealer and broker

With the development of the connected car comes a shift in the traditional roles seen in the auto finance industry. Whitehorn believes that the role of the dealer is integral during these changing times, but we need to understand where they fit into this new connectivity model.

Like the dealers, Whitehorn accepts that the broker will always be around when there is excess supply over demand, and that is when intermediaries come to the forefront. Today, brokers in particular are struggling to get hold of the product, because the primary source goes to the dealer. However, this will change by 2023-2024 when we will once again have excess supply over demand. The OEM member on the agency model will therefore go to other intermediaries, which will be the broker network.

What the future holds

The connected car is the future of the auto finance industry, with connectivity levels expanding over the next five to ten years and consumers increasingly seeing the value in connectivity.

As a result of these developments, connectivity has allowed some of the world’s biggest tech companies to gain access to a market that, until now, had been effectively closed to new entrants. We will wait and see who has the capabilities, expertise and experience to further develop the connected car and stake a claim in car data monetisation – OEMs or tech giants.

Car data will become a key theme on the automotive industry agenda over the next few years and, if its potential is fully realised, it will be highly monetisable.

Analysis from David Betteley AFC Auto content leader

The auto industry is at a crossroads with connected car data. The OEMs have it but don’t know what to do with it. At the same time Google, Amazon, Apple and others are working on ways of partnering with OEMs through Android and iOS to provide better customer services. If the OEMs aren’t careful, they may find that the tech giants steal the opportunity to monetise connected car data from them. If the OEMs try to go it alone, they risk losing out on the big opportunities because the tech industry has already established a big lead.

Right now, OEMs realise that they need to do two things: develop services, and not just financial services, as the main profit generator in the business; and transition from being simple manufacturers of mechanical products to being a manufacturer and tech companies. The opportunity to make money from simply selling more vehicles ended 50 years ago.

Tech is the key to leveraging value from connected cars. With the right tech capability, connected car data has the potential to be monetised in the same way that data from smart devices has. But the capabilities of the OEMs lags behind tech companies.

OEMS have been using connected car data for preventative maintenance for two decades. But additional uses have been slow to emerge. One critical issue is who owns the data. It seems ironic that the customer has to pay for the hardware in the vehicle that produces the data but then doesn’t own the data. In truth even within the OEMs, regulatory concerns have prevented the sharing of data in a way that would allow them to leverage value from it.

Whitehorn talks about the connected car providing “frictionless” services to customers, but with the uncertainty over who owns the data, the current connected car service offerings are a long way from being frictionless.

Culture is a problem for OEMs used to selling car features. Some of the OEMs’ experiments have been ridiculed as they try to transition these into car services. We all know about the car manufacturer who is trying to charge extra to turn on a feature (heated seats) that is already installed in the car, and was formerly available at no additional cost!

There may be opportunities for OEMs and their customers that the tech giants can’t deliver. The car is able to combine charging level data with sat nav information, for example, to steer the driver to the OEMs favoured charging partners.

Connected car data provides a digital audit trail of how a car has been driven through its lifetime. A car that has demonstrably been driven carefully will not only be easier to sell, it will command a higher residual value.

Connected car data is also of potentially immense value to the industry itself in deciding end of contract residuals and enabling “pay-by-use” products to be developed, both things having the tantalising prospect of delivering use-based subscription services to customers at prices they can afford to pay.

The OEMs probably stand a greater chance of exploiting these connected data opportunities than in competing with the tech companies who are leveraging their core capabilities to deliver the rest.