Another delay in Contran 245 deployment and whether the best thing to come out of the mandate at this point might be raised telematics awareness in Brazil.
When we last reported in July 2013 on the long string of delays surrounding the implementation of Contran 245, Brazil’s ambitious mandate to have all new vehicles equipped with tracking devices to curtail rampant vehicle theft, we wrote that light appeared to have been spotted at the end of a long and winding tunnel.
“It seems that June was the last delay in the system implementation,” said a cautiously optimistic Antonio Calmon, who wrote the system’s technological specifications, at the time. “The DENATRAN [National Transportation Ministry] system is up and running, and all players have agreed to participate in the assisted operation and are committed to start in January.”
Last month, that light disappeared around another sharp bend when the DENATRAN announced yet another delay, setting a new implementation deadline for Jan. 1, 2016.
While many of the previous delays were for a variety of technical reasons, with privacy concerns forming an additional roadblock, the current delay – the 11th or 12th (they have been so numerous, it’s difficult to keep count) – has economic and, by extension, political roots.
It comes at a time when Brazil has been rocked by widespread protests over what many people consider the extravagant expenditures by the government on this year’s FIFA World Cup and the 2016 Summer Olympics.
In addition, the country’s once impressive economy has hit the skids, with GDP growing at a modest 0.2% in the first three months of this year (down from an anemic 0.4% in the final quarter of 2013), inflation continuing to decimate personal incomes (6.37% in May), and falling car sales (down nearly 5% in the first quarter of 2014 over the same period last year) resulting in factory lots filling with unsold cars.
The drop in car sales is at least partly due to higher prices, as the government of President Dilma Rousseff ended a tax waiver it had put in place in 2012 to help car sales. According to media reports, the restored tax will eventually add 7% to the cost of a new car.
As a result, Calmon says, some 400,000 new vehicles are languishing in factories as carmakers cut back production and lay off workers.
The OEMs step on the brakes
No wonder the carmakers are worried. But, then, they have always been worried about the effect of Contran 245 on their bottom lines. As Calmon,CEO of Kaitech Consulting, puts it, “The OEMs have been against Contran 245 from the beginning.”
Both Christiano Blume, LAM host manager, strategy & portfolio management, at Volvo Group Telematics, and Cileneu Nunes, president of tracking company Zatix, say carmakers were primarily concerned about Contran 245 tracking and immobilization modules
adding to the sticker price of new vehicles.
Blume puts the additional cost at between $50 and $250, quite a bit of money in a market dominated by low-cost entry-level automobiles. (The carmakers claimed that the additional cost would amount to as much as $315, according to Calmon.)
Calmon disputes suggestions that the additional cost would discourage customers. “Almost all entry-level cars are being bought on installments spread out over 48 to 60 months,” he says. “That would make the cost of the Contran module about the same as an average monthly installment.”
Instead, he says this conservatism has long been an integral characteristic of the Brazilian car market. “The Brazilian car market has always been price-sensitive,” he says. “Even when it had to do with adding some mechanical system to a car, the car-makers would say, ‘If it adds one cent to the cost of my car, forget it!’”
As a result, the National Association of Motor Vehicle Manufacturers (ANFAVEA) requested a meeting with President Rousseff and members of her cabinet, Blume says. And at that meeting both sides agreed to delay Contran 245’s implementation yet again and to try and amend the regulation from mandatory to optional.
No doubt due to the weak economy and protests, but especially because of upcoming general elections, scheduled for Oct. 5, Rousseff and her government were probably eager to defuse a potential controversy over an issue that had been overtaken by more pressing events.
As Blume describes it, the pressure to reduce costs came from both sides, private and public. “There was pressure [on OEMs] to keep costs down,” he says. “And there was pressure on the government to keep unemployment levels stable.”
Extra costs such as for Contran 245 were therefore to be avoided, he says.
“So, instead of a mandatory regulation, it will be optional-mandatory,” Blume says. “That is, instead of having to come fitted with the device out of the factory, everyone will have to offer it as an aftermarket solution. That way, there are no additional costs on a new vehicle.”
“This is the optimal solution,” Nunes says. “We keep the principles of the law but change the regulation.”
However, Calmon, whose company has advised Brazilian and foreign carmakers on implementing the system’s technological specifications and who has personally advised Russian authorities on deploying that country’s state-mandated ERA-GLONASS emergency response system, is distinctly less sanguine.“The OEMs are trying to cancel the law,” he says.
Damages and benefits
The continuous delays caused a great deal of damage to the Brazilian telematics market. First of all, as Roger Lanctot, associate director, automotive multimedia & communications service, Strategy Analytics, puts it, “It wasted a lot of money, millions of dollars.”
Nunes estimates the amount of money lost in the process at “about 50 million Reals,” or about $22.4 million, at current exchange rates.
Much of that loss was incurred by companies who “put hefty bets on Contran 245,” he says. This included, he says, Contran 245 multichannel SIM card manufacturers, infrastructure providers such as Cobra Telematics, OEMs, who carried out extensive testing, and wireless module manufacturers, who may now have to develop yet another device to keep up-to-date with rapid technological developments.
But almost everyone agrees that Contran 245, whatever its ultimate fate, has boosted the prospects of telematics in Brazil simply
by creating awareness – among both car-makers and consumers – of its potential. “The mandate forced people to think about it and plan for it,” Lanctot says. “It also drove down the benchmark price for these kinds of modules, even globally.”
Volvo Telematics Group’s Blume grudgingly admits that the mandate, irrespective of whether it ever gets implemented, could go as far as ultimately accelerate broad acceptance of automobile telematics. “I don’t believe in mandates for telematics,” he says. “I think telematics is a value-added service, and customers should see the value of it. You have to show it to them. But this mandate could speed it up.”
Nunes agrees. “I don’t believe in mandatory impositions,” he says. “In the long term, it is better without a mandate. But the law was an accelerator for the market.”
He does see one use case that could be made mandatory, however. “I would prefer to add e-call with the security,” he says, referring to an emergence response system similar to the one proposed in Europe. ”There are 60,000 deaths on our roads every year. If you shorten the accident response time, then you have a good reason to make it mandatory.”
Nunes sees another benefit that came out of the Contran 245 experience: the cooperation of all segments of the automotive market. “All the companies invested a lot, created a standard,” he says. “The process was marvelous. All entities worked together for two years – telecoms, service providers, OEMs. This is the bright side of it: We now have a system to work in.”
Far from merely hastening the advent of telematics services, Calmon believes that Contran 245 is responsible for nothing short of a revolution in the awareness of the technology. “The number one benefit [of Contran 245] was that it created a very big change in the mindset of auto guys here,” he says. “Car manufacturers had zero knowledge of tracking, telematics services. They used to say: ‘We don’t sell services. We sell cars to customers.’ Now they all understand telematics. Now they want to know how to make money from services.”
As evidence of the growing awareness of telematics, Calmon says that “80% of car ads today are [focused on] telematics.” And that awareness has reached consumers, too. “At all the Brazilian car shows, the big star is the connected car,” he says.
What now?
A great deal of uncertainty remains, of course, not only about the future of Contran 245 but also about the prospects of the Brazilian telematics market.
For one thing, it is not clear at all if the agreement worked out by the OEMs and the government can be realized. “You have a law behind the Contran mandate,” Blume says. “It is very hard to say, ‘Let’s just drop it.’ It is a long process to annul a law. It depends a lot on who wins the election.”
Nunes agrees that the future of Contran 245 depends a great deal on politics. “The head of Contran was changed twice this year, and we still don’t know who the new one will be,” he says. “This is a political year because of the elections. The next Contran head will be a political appointment.”
On the other hand, there is a lot of pressure from the market to drop the law because it would mean additional mandatory investments, according to Blume. “All the development
must be redone because the solutions will be obsolete in two years,” he says. “Two years is a long time for chipsets. We’ve already been through that.”
New pilot trials must be carried out in the field as well, he says. Finally, both Blume and Nunes say that there are still problems related to privacy issues connected with tracking passenger vehicles, which may yet postpone deployment further. “The State Attorney’s office is still dealing with claims related to privacy,” Nunes says. “It’s possible that this is just a lot of smoke and mirrors on the part of the OEMs.”
However, Ricardo Graça, manager, MiX Telematics, believes this latest delay marks the end of the mandate. “My personal opinion is that the [Contran 245] law will be canceled,” he says. “ There is no more political interest and the opposition [to it] is still strong.”
Will the market prevail?
Lanctot of Strategy Analytics reflects the thinking of many when he says that, because of the delays, Contran 145 has become “increasingly irrelevant, [and] two years from now most OEMs will have their solutions on the market, so it will be just a redundancy.”
Furthermore, he adds, most people did not really believe in it. “No one expected that Contran 245 would solve the problem [of auto theft]. The expectation was that shortly after [it was deployed], criminals would have found a way around it.”
He foresees the future of telematics in Brazil in “smartphone-based solutions as well as aftermarket offerings and fleets.”
In the meantime, a non-telematics solution to car theft, SINIAV, is being rolled out, at least partly to deal with the problem of car theft. SINIAV is a nationwide program to install electronic tags in vehicles that will enable the police to identify cars involved in crimes as well as to identify stolen and unregistered vehicles.
However, the system will not be able to immobilize or localize stolen vehicles, which greatly reduces its real-time effectiveness.
For his part, Nunes is scornful of the system, seeing it as a way for the police to more effectively monitor driving infractions, such as speeding.“It is just a good way for them to collect some money,” he says.
On the other hand, Calmon says, almost all the cars are now wired for Contran 245. “The infrastructure is there already,” he says. “The law stipulates that every car must have the connections ready for a tracking device, and that device cannot be taken out of the car. Not counting the Chinese cars, almost 100% of cars have the wiring installed to receive the device.”
Will paid-for value-added services take Contran 245’s place?
So the architecture exists for some telematics solution. “I think the OEMs will drive the [SVR] solution,” Blume says. “A lot of technology is coming. Value-added services will be important.”
He sees his company’s On Call system, which has been on the market since 2011, as a model for a future telematics solution. “A solution to meet the legal [Contran 245] demand as part of a value-added service offer for customers – that would be very interesting,” he says.
He predicts that this will inevitably happen with premium passenger cars “and then migrate down, as has already happened with touchscreens, which you now have even in entry-level cars.”
However, a lot depends on the Brazilian economy, Blume says.
He is heartened by the increasing use of smartphone connectivity in premium and medium-segment cars, including navigation services, radio and music, as well as the rapidly growing popularity in Brazil of the community-based mapping, traffic and navigation app Waze.
In addition, he predicts that telematics will be a standard offering in commercial vehicles in three to five years. “This makes me very optimistic about telematics in Brazil,” he says.
Nunes sees success in the bundling of security systems with insurance. “Security has been driving telematics markets for 15 years,” he says. “Currently, in Brazil we have a cargo niche and an SVR niche.”
He points at the low penetration of car insurance in Brazil. “More than 60% of vehicles on Brazilian roads are not insured,” he says. As a result, stolen vehicle recovery (SVR) providers are increasingly bundling their solution with insurance policies, a strategy Nunes says is finding increasing success.
Calmon sees a need for telematics service providers to better understand the needs of carmakers. “Very few of them are offering something interesting for the OEMs,” he says. “They have zero knowledge of what is of interest to the owner of a passenger car. So they are offering truck services for passenger vehicles.”
Calmon foresees OEMs increasingly offering services related to warranty management and remote diagnostics. “Warranty management can save OEMs more than $200 million a year,” he says.
The problem in Brazil is that most drivers see taking their car to a dealer for servicing as too expensive. “We only go to the dealer during the warranty period,” he says.
As a result, he sees more OEMs offering remote diagnostics equipment and service free of charge for the period of the warranty.
On the other hand, vehicle tracking and immobilization – the services mandated under Contran 245 – would then be part of a bundle of value-added services for which the car owner would pay. “Contran [services] as part of a telematics offer may become very popular,” he says, “but not for entry-level cars. Cars that cost under R$50,000 [about $22,500] will not have tracking devices.”
Nonetheless, he also is very optimistic about the future of car telematics in Brazil. “OEMs are now looking for smart business models for telematics,” Calmon says. ”All automotive guys now understand telematics. They realize now that the connected car can bring them a lot of additional business.”
