Chips are becoming more reliable in critical environments, but the initial design is aging too quickly.
One of the main reasons smartphones are pervasive around the globe is that their cost is subsidized. They can be replaced every couple of years with minimal pain as designs get slicker, more energy-efficient, and new features are added such as better screens or better performance. That works particularly well when a consumer’s out-of-pocket expenses after trading in an older model are basically taxes, service fees, and wear-and-tear deductions.
The automotive industry has been running on somewhat parallel model for years. While the initial outlay is much more significant, trade-ins and resales help soften the blow for consumers after the first purchase. If you buy a car for $30,000, run it for six years, then trade it in for $15,000, your cost of ownership after the initial buy-in is about $2,500 per year plus maintenance and fuel. That car is then resold one or two more times, and the cycle continues almost indefinitely.
That’s been the model that car companies have been operating under since the late 19th century. Cars last longer these days—an average of 11.4 years, according to an often-cited report by IHS Automotive. But in the past, you could be certain that if you bought a car, in six years it would still be up to date enough to actually be sold. In fact, earlier this decade one electronics industry executive remarked that he was considering trading in his car for a newer model, but the only thing he could find that had changed significantly was the radio.
There have been so many changes in automotive electronics over the past couple of years that it’s hard to keep up with. Sensors are being added for accident prevention on blind spots, communications systems are being developed to warn drivers of hazards out of the line of sight, and new engine controls are being included to improve both gas mileage and performance. There are now options for voice recognition, electronic suspension optimization, and emergency services that are so sophisticated that you don’t even have to call for help to say where you are. They already know.
Tesla, for one, has taken the approach that much of this information can be downloaded into software to keep a car model as current as the day it was purchased. And both Google and Apple are rumored to be developing cars that will utilize a similar approach. But the key here isn’t who’s selling the car or the electronics inside of them. It’s what carmakers are envisioning for the overall system design over time.
If you buy a car for $30,000 and you can only sell it for $2,000 because its protocols are outdated and the electronics pale in comparison to newer models, you might think twice about that purchase. At the same time, if you buy a Tesla and the software gets hacked through a download of your home network, you might have similar thoughts.
This isn’t just a problem for automobile companies, either, although with 60 million sold each year that’s certainly a big market for electronics. Think about real estate ads that used to list Ethernet connections in every room as a major upgrade, or a data center that no longer is set up to maximize performance when it’s needed.
The real issue is that design teams need to get ahead of these changes rather than playing catch-up. They need to understand what will change, what can change, how those changes are likely to unfold, and then plan for them with multiple contingencies. Right now they’re too busy watching their competitors and what new features they’re rolling out so they can make their quarterly numbers. It’s time to step back and look at the system now and as it will likely evolve, and put plans in place to make sure no one is caught off guard—least of all their customers.
Two-year cycles work great in consumer electronics, but as purchase prices rise the amount of thought required for controlled obsolescence needs to rise with it. Otherwise a lot of people will be sitting in the unemployment line wondering what just happened.
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I would not call a car obsolete if it still performs its basic function, it can be maintained, and it complies with relevant laws. A reliable car model holds its value on the used car market. A Consumer Reports top pick of 2015 (the April car issue just arrived today) will still find customers on the used market in 2025.
Hi Hank,
I would agree on one level. If the compression in the cylinders is still good, the suspension works, and the drive train is still in working order, then it’s still a car. But value goes down based upon perception, and nowhere is perception more pertinent than in the infotainment or safety system. You see this all the time in movies where nothing dates them like the phones people use or when they’re typing on a computer with a CRT instead of an LCD monitor. What’s the cost if a car no longer supports a phone for hands-free conversation? And what’s the depreciation if the lithium ion batteries in an electric vehicle or hybrid are six years old? And what about if the new model of the car includes night-vision or radar which the previous year’s model didn’t? The answers to these questions isn’t clear, but it’s one that needs to be considered by carmakers and standards bodies over the next decade as electronics changes significantly.