After years of delay, the National Highway Traffic Safety Administration finally issued rules requiring automobile manufacturers to install rearview camera displays, or RCDs, in all cars by 2018. Competing system manufacturers such as Gentex (NASDAQ:GNTX) and Delphi Automotive (NYSE:DLPH) jumped on the news, but investors shouldn't think the decision will do much more their stocks.
According to the NHTSA's press release, RCDs will be required in all vehicles under 10,000 pounds, including the smallest subcompacts all the way up to vans, as a means of reducing the annual average of 200 deaths and 15,000 injuries caused by vehicles backing up over people. Despite several high-profile cases of children who were killed by backing cars, it took a lawsuit against the agency in 2011 to bring the process to completion.
However, because the industry was already heading toward implementation of RCDs, and the agency itself admits the regulations will have little effectiveness, don't expect there to be any dramatic results, either in lives saved or movement of the stocks. It's also possible the new rules will diminish investment in alternative rear-vision technologies, such as automatic brake intervention, combination sensor/video systems, infrared, or Doppler radar systems. While the NHTSA's regulations don't preclude them, the significant cost of adding the mandated systems had carmakers such as BMW (NASDAQOTH:BAMXF) worried they would shut out new, perhaps even better, alternatives.
There are typically two means by which car manufacturers deploy RCD systems: in-dash systems and rearview mirror enabled. Gentex, a leading maker of auto-dimming rearview mirrors for cars, pushed for the regulations to require mirror-enabled capabilities because they say it's the most natural place for a system, since that's where people already look when backing up.
Yet manufacturers of in-dash monitors that typically utilize the infotainment systems that manufacturers such as Delphi and Sony (NYSE:SNE) install in cars argue that the larger real estate their screens offer make the dashboard the most appropriate spot for RCD displays.
Smartly, the NHTSA didn't choose a winner in the debate, saying carmakers can choose best what their customers want. Having driven vehicles with both types of systems installed, I can say unequivocally that the in-dash system is preferable.
Few people actually drive in reverse looking at their rearview mirror. Although you might initially glance at it to check your field of vision, you typically turn your head to look backwards and drive, which is why some people pushed for rear-mounted displays. Also, the picture offered by a rearview mirror is tiny compared with in-dash systems, making it more difficult to discern what's behind the car. With an in-dash display it's actually possible to drive in reverse without having to turn your head.
Mirror manufacturers also admit their LCD systems take longer to warm up because they aren't activated until called upon -- i.e., the car is put into reverse -- unlike infotainment systems that are already in use for other purposes. As a consequence, they wanted the regulations to allow for those longer periods, but the NHTSA kept its requirement that all systems be ready for use within two seconds.
Despite all the posturing, the regulations won't do much. Almost 60% of vehicles manufactured today come with RCDs installed, and the NHTSA anticipates that almost three quarters will be compliant by 2018. The cost of getting the remaining vehicles compliant is expected to be between $550 million and $1 billion, but their effectiveness will only be between 28% and 33%, meaning just 58 to 69 lives per year will be saved. That puts the cost per life saved anywhere between $16 million and $26 million.
Yes, a child is priceless to his or her parents, but more awareness on their part when driving would likely play just as important a role. There were 43 deaths of children last year attributed to heatstroke from having been left in a car -- more than half of whom were "forgotten" by their caregiver -- and hundreds more were killed because parents didn't use seat belts to restrain them. It suggests parents simply need to be more cognizant of their child's health and safety.
Gentex said as the regulations came closer to reality, more companies entered the market, leaving its own RCDs affected by the increased competition, as well as existing rivals like Magna International (NYSE:MGA) ramping up deployment of their own systems. With the rules so long in coming, most carmakers already comply with them, meaning there's little upside left for Gentex or any RCD manufacturers to back up the Brinks truck and capitalize on their promulgation.