GM Pushes OnStar Into Aftermarket
10 Mar 2011
It wants the on-board communications service to be a kind of in-car smartphone and is offering it to retailers and other carmakers.
By David Welch
When General Motors (GM) launched its OnStar telecommunications business in 1996, management planned to put the safety, navigation, and communication service in all GM cars, enabling motorists to plan travel, make phone calls, or even track stocks from behind the wheel. GM figured subscription and fee revenue from electronic services could get so big that OnStar's profits might surpass those of its car business. That proved true: OnStar was modestly profitable while GM's car business lost $101 billion from 2005 until the company's 2009 bankruptcy.
Now, with former telecom executive Daniel F. Akerson in the chief executive officer's seat at GM, the automaker once again has big ambitions for OnStar. Akerson hopes to expand the communications service by both increasing the number of GM car owners who continue to subscribe after their six months of free service ends, and by selling the system to owners of rival auto brands. He named former Revol Wireless executive Linda Marshall in January to run the unit, which has set out to transform cars into 2-ton smartphones. GM will also rollout this year a separate in-car entertainment system called Chevrolet MyLink for its biggest brand. "What's happening is a crashing of technologies between consumer electronics and the automobile," says Micky Bly, GM's executive director of global electrical systems. "Our research says that infotainment is one of the top five reasons to buy a car."
This spring OnStar will begin selling its signature hardware, at a cost of $299 plus installation, through retailers such as Best Buy (BBY) to get systems into cars sold by rivals. GM has even debated selling off part of OnStar to outside shareholders to create some distance from its corporate parent and make competitors comfortable with installing OnStar in their new cars.
GM may have waited too long to press its first-mover advantage, however. Although OnStar has earned a reputation for safety and security, thanks to features that alert police if a connected car is stolen or involved in a crash, newcomer Ford (F) has jumped ahead of it in the hot market for in-car entertainment content. Ford's Sync system plays music on voice command and even reads tweets to drivers. Meanwhile, this summer Hyundai Motor will launch a competing system called Blue Link to go toe-to-toe with OnStar for safety and security features. "It's almost like Rip Van Winkle," said Roger Lanctot, an analyst with technology consultant Strategy Analytics. "[GM] woke up and realized they could do other things. But it's kind of late."
For now, OnStar is the leader. It has 6 million users, more than 4 million of whom pay an average of $240 a year. Add in the mobile-phone minutes from Verizon (VZ) that OnStar resells, and the GM unit logs more than $1 billion a year in revenue, with double-digit profit margins. Its staff of 2,200 agents answers 99.7 percent of emergency calls within a second, faster than police 911 agents, OnStar says. During GM's bankruptcy, OnStar was valued between $2 billion and $4 billion...
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