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IMA Executive News & Views Blog

New revenue streams using consumer data must contend with privacy laws

by Alain Marcuse

RSM US LLP is an IMA Member

A global wave of consumer data protection regulations, including the European Union’s General Data Protection Regulation, the California Consumer Privacy Act and Brazil’s Lei Geral de Proteção de Dados, is on a collision course with accelerating changes in the automotive and “smart mobility” economies. This collision will challenge the industries’ efforts to transform consumer data into new revenue streams in an effort to compensate for declining vehicle sales. As with any challenge, however, this trend represents both a threat and an opportunity to companies in this sector.

Analysts expect U.S. light-vehicle sales to decline to 16.4 million in 2021 from a peak of 17.5 million vehicles sold in 2016.1 While the much-discussed generational trend of millennials being uninterested in car ownership may be somewhat overstated,2 increasing vehicle longevity certainly plays a role here. According to the Bureau of Transportation Statistics, in 2014 (the most recent year for which data is available) the average age of all light vehicles in operation in the United States was 11.4 years, up from 8.4 years in 1995. Whatever the fundamental causes, the consequences mean continuing sales declines.

Today’s cars can contain 100 electronic control units and connect to the world around them through a dozen or more networks—including Bluetooth, Wi-Fi, cellular data and mobile apps—processing a vast array of vehicle and personal data. In a world of declining vehicle sales, it is tempting for auto and smart mobility companies to look to monetize this data by designing and launching subscription and other services, including selling such data to third parties.

Establishing transparency, compliance—and trust

While monetization of consumer data in this way is not illegal under the new regulations, it must be conducted in a transparent manner, and with the consumer’s consent. Regulators are starting to take action when this is not the case—even in the absence of a data breach, penalties for noncompliance with the new wave of privacy regulations could amount to billions of dollars. Consumer trust can quickly be lost if data privacy is compromised, with significant reputational brand damage, along with legal and other costs.

In this challenge, however, lies opportunity. The companies that gain consumer mind share as champions of data privacy can leverage this positioning to competitive advantage.

With a product development life cycle that typically stretches four to six years and a vehicle useful life, on average, of 15 years, design decisions made today will be in cars on the road in 20 years’ time. An incorrect privacy decision made today may be extremely costly years from now.

It is therefore critical to carefully navigate the treacherous new data privacy waters rushing towards the auto and smart mobility industry. Suppliers and OEMs will need to navigate these waters not just for compliance, but also for competitive differentiation. Ultimately, companies will need to persuade consumers to trust their products partly because of their approach to privacy protection.

If you would like to learn more about this topic or speak with RSM please contact Linda Peddle.

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