How can the internet change the automotive industry

Internet in the car will massively change the weight of the market in industry

29.09.2014 – 09:00

McKinsey & Company

Dusseldorf (ots)

McKinsey study: The arrival of new technologies entails a reorganization of the automotive industry - market volume for connectivity services will quintuple by 2020 - connectivity offers can shift market shares and change the service business

The global automotive market is facing a fundamental reorganization. The trigger for the shift in market weight is the increasing networking of vehicles and the associated increase in customer demand for connectivity offers: For 13% of buyers, a new vehicle without internet access is no longer an option. This is a key result of a current industry study by McKinsey & Company entitled "Connected Cars". The basis is a representative survey by the management consultancy among 2,000 car buyers in Germany, the USA, Brazil and China as well as more than 30 interviews with automobile manufacturers, suppliers, telecommunications and semiconductor companies.

"Car connectivity has the potential to change the automotive industry significantly along all sources of income," says Detlev Mohr, head of McKinsey's European automotive consulting. For those who keep a new car for five years, the purchase price currently makes up 52% ​​of the total expenses for its use. The other half is divided between operating costs (24%), insurance (14%), maintenance and repairs (6%) and car connectivity (4%). The last cost item in particular will change noticeably in the future:

The global market for connectivity components and services will more than quintuple by 2020 from 30 billion euros today to 170 billion euros. Then connectivity accounts for 6% of the expenditure. Mohr: "However, the indirect influence of car connectivity on market shares is much greater. The issue is becoming a decisive competitive factor for car manufacturers."

Car customers ready to change brands

"When buying a car, offers such as real-time maintenance information, location-based recommendations, dynamic congestion forecasts or music streaming are playing an increasingly important role," explains Mohr. 20% of customers would change their car brand if this would bring them better connectivity offers. Among the frequent drivers who spend more than 20 hours a week in the car, the proportion of those willing to change is even 40%. In China, the world's largest car market, the willingness to switch is generally higher than in Europe. "The potential shift in market shares between the car manufacturers is one of the main effects of connected cars," says Mohr.

"The areas of maintenance and insurance are also significantly influenced - for example by maintenance recommendations or our own apps," explains Mohr. Manufacturers could use data on the condition of vehicles to increase their share of the maintenance and repair market by strengthening customer loyalty. 23% of the car buyers surveyed worldwide - only 7% in Germany - would follow the maintenance or repair recommendation of an app and go to an authorized workshop.

In addition, information about driving behavior could change the insurance business: 35% of the drivers surveyed would be willing to release data for insurance companies in order to receive a discount of 10% on their insurance premium.

Struggle for leadership

"The automakers have to be careful that they don't leave the sovereignty over the digital revolution to the Internet companies," says Dominik Wee, partner at McKinsey and responsible for connected cars. Companies from the software or telecommunications sector are entering the market and often offering their services (such as navigation software) more cheaply and sometimes free of charge. Many customers are not willing to pay a surcharge for additional services: only 34% of car buyers state that they buy a standardized smartphone interface for the car for just under 80 euros; only 20% would pay for subscription-based services.

It is therefore crucial for automobile manufacturers to remain in control at three critical points:

- HMI (Human-Machine Interface): The integrated operation of services and apps in the car is a unique selling point of the automobile manufacturer. New technologies such as projections on windshields, which make this networking intuitive, comfortable and safe, offer manufacturers the opportunity to maintain their competitiveness in this area. - Real-time vehicle data: anonymized data on the condition and use of the vehicle are the basis for insurance and maintenance services, but also for many other services. This is a crucial control point, especially given that many customers are concerned about data security. - Real-time geographic information: Current data on the traffic situation, black ice warnings and location-specific services can only be offered via real-time geographic information. Together with sensor data in the vehicle, these form the basis for autonomous driving. Connected cars that will come onto the market in the next few years will pave the way for driverless vehicles.


McKinsey & Company is the leading management consultancy for top management in Germany and worldwide. 27 of the 30 DAX companies are among the clients. McKinsey is active in Germany and Austria with offices in Berlin, Düsseldorf, Frankfurt am Main, Hamburg, Cologne, Munich, Stuttgart and Vienna, with 105 offices in more than 50 countries around the world.

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