Nov 14 2023
Over-the-air (OTA) updates are a growing trend in the auto industry and are expected to be standardized across OEMs by 2028. While OTA updates will greatly benefit OEMs, saving 1.5 billion per year in recall services as well as improving the customer experience with fewer trips to the dealer, how will they impact the rest of the industry? This article addresses some of the unknowns that could potentially benefit or negatively impact the retailing, servicing, and insuring of vehicles in the future.
According to ABI Research, “performing these legally required software updates in-person costs OEMs half a billion dollars annually.” Completing these software updates remotely via OTA updates will save OEMs a significant amount of money each year, however, this means less recall revenue for the dealership’s fixed ops department. Additionally, dealers are losing out on the opportunity to upsell these customers on maintenance and repair services while they're in the service lane for these recalls. According to a Wards Auto article, worries about these revenue losses may be relieved because “GM believes dealers will benefit from its new OTA-empowered digital architecture, because it will allow them to save money by fulfilling basic warranty and repair claims with less overhead costs.”
The average life of a vehicle has been trending upward every year, averaging 12.5 years in 2022 according to S&P Global. Could this number increase even more as OTA software updates become standard across brands and aging vehicles stay more relevant with current tech? There will certainly be car enthusiasts who still want the newest vehicles, as well as vehicle owners who prefer to avoid dealing with increased repairs and maintenance of an older vehicle. At some point, the hardware may also not be able to support the latest and greatest software features, as anyone who has dealt with Apple iOS (for example) may know. So, while these vehicles could stay relevant for longer by updating software, it doesn’t necessarily mean vehicle owners will keep their vehicles even longer. Dealerships should be actively monitoring how OTA updates could impact vehicle sales in the future and the resulting average vehicle lifespan.
While dealers could potentially miss out on some vehicle sales if OTA software updates end up increasing the average vehicle lifespan, this also could mean a greater opportunity for replacing this revenue leak by selling extended warranties. Assuming increasingly more complex vehicles last longer, it will be important for consumers to protect their assets with warranties that cover these features.
Beyond some of the more basic OTA software updates, such as GPS map refreshing or new apps/streaming services, OTA updates can carry a lot of weight dealing with core vehicle functionality, like powertrain, chassis, and braking systems. Many of the ADAS features are also updated via OTA.
How does this impact the risk assessment of these vehicles? It can already be a challenge to fully understand what safety equipment is present on each new vehicle and how it functions when underwriting policies without an accurate vehicle data provider. The proliferation of OTA updates means underwriters will also need to be made aware of major updates that could impact the vehicles they’ve previously assessed insured.
OTA updates are an exciting technology for the automotive industry that will ultimately improve the user experience for vehicle owners with a more efficient way to keep their vehicles in optimal condition. While revenue generation and risk evaluation processes are likely to change for many businesses across the industry, the standardization of OTA updates appears to mostly have a positive effect, and the most successful businesses are always the first to adapt as the environment changes.