Vehicles are now being transformed by a wireless revolution that will substantially enlarge the telematics market over the next decade.¹ But carmakers are unlikely to win much of the revenue from this expanding market unless they aggressively shape the environment so that telematics applications can succeed commercially. Merely installing telematics units in vehicles won’t be enough—it will also be necessary to develop more frequent and closer contacts with customers; to join forces with the best technology, service, and content providers; and to engage the regulators.

Telematics includes in-vehicle applications such as navigation and traffic information systems, collision avoidance systems, and mobile communications gear. Far more sophisticated devices lie on the horizon. Three distinct submarkets are emerging. The "front-seat" market, constrained by the need to avoid distracting motorists, will revolve around safety, security, and features that make driving easier. The "rear-seat" market will include interactive games, music, and video on demand. The third market, for engine and other mechanical applications, will use data collected by on-board computers to provide tools such as remote diagnostics, remote engine tuning, and the intelligent ordering of replacement parts. In all, these markets could generate up to $100 billion—depending on customer demand and regulatory...