To Cover or Not To Cover – The Future of Vehicle Technology

In 1939, vehicle buyers were offered the option to upgrade their new vehicle to the first available fully automatic, mass produced transmission – the Oldsmobile Hydra-Matic Drive. The option cost buyers a whopping $57. Today, technology has increased by leaps and bounds, opening the door to a new era of vehicles that no one could have dreamed of in 1939. Features in automobiles that were once the makings of science fiction will soon become the norm as automobile manufacturers rapidly take the role of leader in innovative technology. And service contract providers should no doubt begin to think about how to adapt coverage to account for the increasing role technology will play in tomorrow’s vehicles.

The days of the automotive industry “borrowing” established technology from other industries could well be coming to an end. In-vehicle technology is seen as the newest path for automakers to separate themselves from the pack and the technology requirements to deliver to it are not necessarily available from other industries. The 2014 Detroit Auto Show was brimming with technology-laden vehicles. Consumers who have become tethered to their smart phones now demand vehicles with the ability to keep them connected to their digital lifestyle, and this consumer demand for technology is expected to continue driving automotive innovation. A study by consulting firm, Accenture showed that in-vehicle technology is the top selling point for 39% of car buyers today.

Tony Wanderon, CEO, National Auto Care (NAC) recalls the days when picking out a new paint color was one of the most exciting things about buying a new car. “Now, it’s completely different. Cars have so many new telematics from just a few years ago, its hard to keep up with all the new features technology offers.”

Many companies plan on including their newest and best technology on smaller, less expensive models that are more affordable to younger generations. Ford has embraced this line of thinking and already offers lane assist, rear view cameras, Sync and blind spot detection on the Focus. Other companies are also showcasing big technology on more affordable models, with back up cameras, Bluetooth technology, parking assist and automated braking now being offered on many lower-end models.

National Automotive Experts’ Vice President, David Neuenschwander, says the younger generation is not only technology savvy, they are technology spoiled. “It is all cool stuff – all the things that will change and emerge in vehicle technology. The futuristic components and abilities will help us all from a retail standpoint, but how do we mitigate or control from a pricing standpoint what those losses will look like? Maybe for the first time, it will put service contract providers in an uncomfortable position.”

As recently as 40 years ago, electronic controls were practically unheard of. In the early 90’s electronics accounted for about 15% of the cost of a vehicle. Today, the cost of software and electronics in vehicles is fast approaching half of the cost of the vehicle itself. Some estimate the cost is already as high as 40% in luxury models. At the same time, many auto manufacturers are now looking to the annual Vegas Consumer Electronics Show as one of the most important shows in the auto industry, as connected cars become the hottest cars that dealerships have to offer and software development for vehicles continues to move at warp speed.

Accounting for the Increase in “Connectedness”

There are few things in new vehicles that are not managed by Electronic Control Units (ECUs). For example, ECUs currently manage systems such as the drivetrain, brakes, and entertainment system. Even low-end vehicles have between 30 to 50 ECUs and high-end, newer cars have close to 100 million lines of software code. The steering was among the last component to be taken over digitally, now that it is frequently supplemented with driver-assist systems. In many cars, the parking brake may, in fact, be the last component that remains solely under manual control in today’s vehicles.

The increasing level of complexity in vehicle technology brings with it issues of reliability – studies have shown that manufacturer warranty costs are highly correlated with the cost of the vehicle’s electronics and software. We may see VSCs adapting for this as well. And since much of the technology is difficult and costly to repair, it is typically cheaper to replace malfunctioning components rather than repair them. In addition, vehicles damaged in a collision may be more likely to be declared a total loss due to the cost of the embedded technology.

“As technology continues to advance,” says Brent Allen, president and COO, StoneEagle.com, “it is going to be more expensive, so you will definitely see costs of VSCs changing as actuaries have to start taking into account the different new electronics on vehicles. I don’t even know if there are VSCs for a car like a Tesla. It is such new technology, I am not sure if actuaries even have enough information to know how to price coverage.”

Renowned researcher, IHS Automotive, predicts that the number of cars connected to the Internet worldwide will reach 152 million by 2020 – about six times the current number of connected cars today. British consulting firm, Machina Research predicts 90 percent of cars will be connected to the Internet by 2020. Many see cars becoming just another device connected by the "Internet of Things" (IoT). The IoT represents the future of connected technology embedded into everyday objects, from your car to kitchen appliances, street lamps, cell phones, medical equipment, your wallet – the list goes on and on.

So how can technology be accounted for by warranty companies when significant advances are happing so quickly? Neuenschwander, says simply that warranty companies can’t account for it. The advancements in automotive technology are putting warranty companies in a new position and time is going to be a luxury they don’t have. “Historically, we have leveraged what the manufacturers have done, from a cost and a durability standpoint, looking at underwriting tables and results. We have had at least three years on a manufacturers warranty in the past. But in the future, with people trading in cars more frequently and with lower miles, I don’t think the service contract industry will have that window of time to study and get comfortable with that emergent technology anymore. I think that in some cases, we are going to be on the hook for providing coverage and pricing for it within the year – which is not a position we have ever been faced with. “[The technology advances] are all very positive but not something we are accustomed to.”

“Our business has typically been viewed as consistent,” Wanderon noted, “but today, I think it is the riskiest it has been in some time because we don’t know what technology is going to be like in the future, and so we will have to play catch up.”

Augmented Reality

The Blurring of Virtual and Physical Worlds

Many automotive suppliers' top focus is now software engineering and integration. Some high-end manufacturers have plans to offer future telematics options that will increase vehicle cost by $10,000 or more. Many expect to see great innovation in the future for touch screens. The current technology in many models is not up to speed with that of hand held devices, and is expected to become much more intuitive in future models.

Before the advent of the windshield, early motorists relied on driving goggles. As the windshield itself now evolves, tomorrow’s drivers might be giving up their dashboard displays altogether and instead, relying on heads up displays projected right onto their windshield. Interior controls utilizing knobs and buttons are likely to become a thing of the past, as manufacturers develop controls that rely on gestures and eye movements. In addition, future heads up displays will utilize a combination of reality and virtual reality to project navigation, warnings and other vital information to drivers. By projecting larger, colorful displays onto the windshield, drivers will be able to readily access a variety of information without ever having to take their eyes off the road.

Land Rover is exploring the world of augmented reality in vehicles with what they are calling a “virtual windscreen” and “transparent bonnet.” They hope to provide drivers with an interactive, virtual image on the car's head-up display that uses the entire windshield - making driving similar to playing a video game. The windshield display concept would feature virtual lanes and drivers would be able to navigate around virtual cones - something that could be useful in driver-training courses. It would also allow them to project virtual cars that the driver could race – clearly not a technology that is applicable outside of the racing industry. The transparent bonnet (or hood) concept utilizes wide angle cameras in the car’s grill and will then project the image on the windscreen so that the hood appears semi-transparent to the driver, allowing them to see not only what is underneath the vehicle, but the angle of the front wheels. For now, however, the transparent hood and virtual windscreen are still concepts with no launch date predicted.

The growing debate on whether or not technology reduces or adds to driver distraction may require that the driver utilize much of the new technology before driving. Steve Amos, president, Gulf States Financial Services (GSFS), likens it to a preflight checklist. “Before you even start driving you have to check so many things - have you got your iPod plugged in, your seatbelt on, trip odometer set, and so forth. Pretty soon manufacturers are going to need a checklist that displays a listing of all the driver’s options. When you enter the vehicle, the car could notify you to press a button if you want the car to preset all of your preferences for you. So when you get in, all you have to do is press the default button and it highlights and engages all of your preferences, instead of having to go in and select each and every one of them every time.”

Similar to the iPhone’s Siri, more vehicles in the future will be equipped with voice recognition, that allows the driver to operate controls hands-free, and the voice recognition which has not been the best is expected to improve. Earlier this year, Apple announced that their new CarPlay technology will enable drivers use their iPhone in their vehicle with voice commands or steering-wheel buttons. CarPlay will be seen on a number of models this year and dozens of other manufacturers have committed to offering it in the coming years.

The Driverless Vehicle

Various types of emergent self-driving technology are expected to become more widespread, such as crash avoidance, parking assist, lane monitoring, etc ... While the self-driving technology takes over, typically for under ten seconds - it must incorporate significant information about the vehicle’s surroundings to operate safely and effectively and use artificial intelligence to process the information. Sensors, lasers, cameras, lidar (used to calculate distances between the vehicle and other vehicles and objects) and radar systems are all important pieces in the successful autonomous functioning capability – regardless of the degree of their autonomy.

Audi’s first automated car had Tampa highways closed briefly for its maiden test-drive in July. Audi also showed off its self-driving technology at the 2014 Consumer Electronic Show, demonstrating cars that could park themselves without a driver behind the wheel at all. Honda has their own driverless valet technology in the works, utilizing wi-fi enabled cars that communicate with strategically placed mirrors in a parking garage. With both manufacturers, the driver is able to exit the vehicle and with the touch of a button on their smart phone, have their own driverless valet service.

Long before driverless vehicles become legal and available to the general public, assisted-driving features will continue to grow in prominence, laying the foundation for future self-driving vehicles. Driver-assist technology that can take over navigation in stop-and-go traffic is one such technology in the works. Audi is currently developing a driver-assist technology that can take over the vehicle in an emergency to prevent a crash in everyday traffic conditions. Audi currently offers an assisted cruise control with the ability to regulate the vehicle’s speed, considering the speed and distance of the vehicle ahead. This technology functions at speeds up to 155 mph. Mercedes is offering Intelligent Drive, a safety and technology assistance package that utilizes 36 separate technologies, including traffic-jam assist - a feature that allows the car to steer, drive and accelerate autonomously as long as the car does not exceed 37 mph. Lexus and Infinity have similar futuristic technologies in the works. In fact, almost all car manufacturers are working to develop and incorporate their own form of automated-driving technology.

With such advances appearing in new models, providers may be hard pressed to stay on top of the technology. “With some of the new technologies,” says Neuenschwander, “if we don’t keep our eye on that ball, then all of us - the whole industry - is going to find itself in an upside-down financial position.”

The Real Cost of Technology

Are automotive manufacturers going to follow in the footsteps of the early 1990’s PC industry and overlook security until high profile attacks occur? As the connectivity in vehicles increases, so does their vulnerability. All of the systems monitored or operated through the use of computers present a channel for malicious vehicle compromise. Conveniences in today’s luxury vehicles such as automated parallel parking, Bluetooth, wireless hotspots, digital tire pressure readings, keyless entry, RFID car keys, satellite or digital radio, GPS, and digital media ports all present vulnerability. The advances the industry is making in the name of safety and convenience could come at the cost of relinquishing some degree of privacy and control, and increasing vulnerability.

Even an automobile’s media system can be used to access various internal networks within a vehicle. A vehicle’s audio system, for example, could be compromised through the upload of firmware using a doctored CD. This would then allow someone to maliciously take remote control of the vehicle’s telematics. The perpetrator could then do many things including, for example, extract the vehicle’s location and use the vehicle’s Bluetooth speakers to listen in to on-board conversations.

Allen thinks this could be a real issue in the future. “Its one of the things I find most alarming. There is no question - it is going to happen and it really bothers me. Thieves could hack into a system and use the technology to locate very specific kinds of cars to steal. There is so much GPS technology now in our cars, that there is bound to be that criminal element that figures out how to use it for their advantage.” He could therefore imagine future F&I products that offer some type of digital encryption coupled with a specialized GAP policy for theft.

Some developers of technology are also looking to redundancy to prevent the failure of one system from leading to the failure of others. By offering more than one separate, independent means of operation, technology researchers and developers hope to prevent disasters resulting from system failures. The use of redundancy will likely be critical in preventing disastrous failures, but may also be an effective strategy for protecting systems such as braking, which are more prone to deliberate attack by hackers.

A joint research paper between University of California and the University of Washington titled, Comprehensive Experimental Analyses of Automotive Attack Surfaces, was the among the first to consider “the full external attack surface of the contemporary automobile.” They characterized threat models and experimentally demonstrated the practicality of remote threats, remote control, and remote data exfiltration. Their research is intended to be eye opening to the industry – exposing how easily vehicles can be hacked and the researchers aimed to provide direction on how to “better secure the automotive platform in the future.” Whether the reality of this type of research sinks in or not is yet to be determined.

Government Push for Safety Technology

The federal government has historically been a driving force, pushing manufacturers to add the newest and most advanced vehicle safety features as they did by requiring air bags and seatbelts. Technology itself is now at the top of their agenda. The back up camera will be required in all new vehicles in 2016 and they say mandating V2V (Vehicle 2 Vehicle) technology will be next. Vehicles equipped with V2V devices emit a short-range signal ten times per second and also look for signals being emitted from other vehicles. The information would be used to alert drivers of potential hazards.Eight major automotive manufacturers provided support for a joint research study between theUniversity of Michigan Transportation Research Institute and the U.S. Department of Transportation. The study involved around 3000 cars, trucks and busses fitted with V2V technology.Vehicle-to-infrastructure (V2I) technology is also being explored. This would expand vehicle communication by allowing vehicles equipped with the technology to communicate with stoplights and road signs, and provide real time information on traffic as well as offering detours to avoid congestion. The National Highway Traffic Safety Administration (NHTSA) predicts that the V2V technology could reduce up to 80% of vehicle crashes. Once required on new vehicles, the same technology could be retrofitted on older models and even into cell phones, which would also enable vehicles to detect pedestrians.

In July, President Obama spoke at the Turner-Fairbank Highway Research Center in McLean, Virginia on the importance of investing in new vehicle technology that will make driving smarter and safer. But as the government pushes for V2V and also tighter requirements on fuel efficiency, concerns are being raised about the cost of compliance.

V2V technology is expected to add weight and increase the cost of vehicles. The Detroit News reported that by 2025, V2V technology could increase the cost of a new car by $3,000. The extra weight is also a concern for manufacturers who are already exploring the use of alternatives to steel, such as aluminum and magnesium, to meet the demand for increased fuel efficiency. NADA says that the 54.5-mpg standard that the White House is pushing for could add $5,000 to new 2025 model prices.

Future Technology and F&I

Neuenschwander says he could “absolutely imagine” a package that would be priced separately or as a surcharge to cover new technology in vehicles in the future - service that is afforded separately, based on whatever the technology is, at least early on. “This would save many companies a lot of trouble with changing terms and coverage quickly. For years, it took four to five years before there were enough significant changes in vehicles to prompt changes on a service contract. I don’t think we will see that length of cycle going forward.”

The technology in cars isn’t the only thing growing and evolving in the industry; the way people are buying cars is also changing with technology. As online buyers increase in number, so does the difficulty for the F&I office to deliver effective presentations to online customers. Allen thinks the offerings of future technology will extend beyond the vehicle itself and offer the solution for presenting and selling F&I products to online customers. “I’d like the dealer to come out to my house, sit down in my living room with an iPad, sign all the paperwork, bring the keys, and give their F&I pitch. When they bring the car, they would have the opportunity to present service contracts and other F&I products in a comfortable environment, just as they would have done in the dealership.” Allen says that companies are already working to create a seamless interface and use eSignatures that would allow for the whole sales transaction to take place anywhere, just using a mobile device.

What Car Enthusiasts are Excited About

Allen sayshe is most excited about seeing technologies come into play that make cars more fuel efficient AND more fun to drive. He is least excited about the possibility of increased automation taking the driver’s experience out of the car. “Because my bend is towards performance, when you take performance out of the car, it becomes boring. A certain amount of technology is a great thing, but too much can be a bad thing. Drive-by-wire throttles and steering have a tendency to make the car feel less engaged and I’m not in love with that type of experience.”

Amos also looks forward to high performance vehicles becoming more fuel-efficient.

As a part time racecar instructor, he says racecars have already mastered this through the use of hybrid technology with gas-powered motors. “In terms of top speed, power, torque, and fuel economy, the technology is here, but you are not seeing it except on the big, highly budgeted, factory-backed race cars – and this is pretty unaffordable even to most racers. But it is out there, and they are winning races with it. Electric cars have this now – tons of power as soon as you turn them on, but they just don’t go very far… and they don’t make that good engine sound yet!”

As far as vehicles outside the racing arena, Amos thinks the coolest new offering is the back up camera. He says this is a technology that he has really come to rely on, as it improves safety and is a big help when backing out of a parking place when the driver’s view is obstructed.

Wanderon is most looking forward to future technology lending itself to remote repairs, similar to the way your cable TV company can remotely update your cable box. “Not having to take your vehicle in for service would be a huge benefit. If they could do off-site repairs or updates electronically it would eliminate the need to take your car in for service as often. This could also be a way to handle certain vehicle recalls – remedying a problem by updating or repairing software remotely. It would save a lot of time and inconvenience for everyone.”

With so many leading edge technologies already available, Neuenschwander says today’s luxury cars have the technology to keep drivers safer than ever before. “Some luxury cars pretty much won’t let you get in an accident with their adaptive cruise control, lane change monitoring and automatic braking technology. The technology can cause a car to stop itself before it hits something.”

Despite the uncertainty the technology may cause underwriters, everyone seems quite excited about the automotive advances that the future holds. Cars are expected to advance more during the next 20 years than they have since they were invented, and Amos expects that could occur even sooner. “It is an exciting time to be around cars and be in this industry,” says Amos, “and it is only going to get better!”