OnStar Looking Beyond GM to Maintain, Grow Subscriber Base
10 May 2010
OnStar is expected to bring out a mirror-mounted telematics device for the retail automotive aftermarket sometime early in 2011. The move is part of a broader strategy to take OnStar beyond the shelter of parent General Motors to tap into the wider market potential of safety and security and to finally and safely integrate entertainment technology with the telematics solution.
General Motors' OnStar division has yet to officially acknowledge its plans for an aftermarket product introduction in 2011, but the company has come close to affirming their existence with a report on CNNMoney.com that the company will "extend the OnStar business even beyond automotive."
The statement comes in the context of an announcement of a relaunch of OnStar before the end of 2010. As part of that relaunch new OnStar president Chris Preuss has been spreading the word that OnStar is looking to hire 30 or more engineers and developers to drive the revamp of the 14-year-old system. OnStar has declined to comment on any aftermarket plans.
Preuss has moved quickly to put his imprint on the brand. Preuss arrived at OnStar with a long pedigree within GM as a senior communications executive both in the U.S. and Europe and has joined the broader effort within the company to project the brand into the world of social networking and closer connections with customers.
For at least the past two months, GM has been building a team intended to bring an aftermarket OnStar product to the world of "big box" retail epitomized by Best Buy and others in the U.S. According to industry sources, the original plan was to launch before the end of 2010, but it now looks like a 2011 time frame is more likely. But OnStar's plans likely do not end there.
The reason for the aftermarket launch, and a potential move beyond automotive opportunities, is the potential crisis foretold by declining sales volumes for GM vehicles which are packaged with OnStar as a standard feature. Vehicle sales for GM are in the midst of a three-year swoon (down 21% in 2008, down 32% in 2009, flat in 2010) based on JD Power estimates.
Assuming unchanged subscriber renewal and retention rates, the OnStar subscriber base - long reported to be 5.5M - is likely in the midst of a precipitous decline and in sore need of shoring up from other sources of subscribers.
OnStar currently offers its services free for one year on most GM models, and then at subscription rates of about $20 to $30 a month, depending on the level of service, or $200 to $300 a year. Those numbers translate to more than $1B in revenue. OnStar's new president claims a better than 50% retention rate among new car buyers - though the overall renewal rate is likely lower.
Even if OnStar is maintaining a 50% retention rate, the diminished vehicle sales volumes are undermining GM's ability to replace subscribers lost to attrition. Under these circumstances, maintaining the 5.5M subscriber base will be a challenge.
OnStar executives privately aver that the division is and continues to be profitable, but a significant decline in subscribers is putting that profitability in jeopardy. Further, OnStar is famous within the industry for claiming to save GM hundreds of millions of dollars in warranty costs from catching vehicle problems early in vehicle life cycles. And Preuss is quoted in the CNNMoney report saying that OnStar is a factor in at least two-thirds of customers' decisions to buy a GM product.
The challenge for OnStar goes beyond the decline in vehicle sales volumes. GM is competing against Ford and other OEMs that are emphasizing smartphone connectivity, which provides many of the same features and functions as OnStar. With so many functions shifting to phones customers are less inclined than ever before to add yet another subscription, even if it is for an embedded vehicle safety system.
One of OnStar's greatest assets, though, is its brand, which is why the group is looking beyond GM. Preuss says OnStar may return to offering its system to competing OEMs or may vary its business model to allow for sponsored content or services such as ad-supported turn-by-turn instructions.
There are other scenarios for an OnStar move beyond GM including a commercial telematics solution for fleet or asset tracking, offerings for insurance companies to target pay-as-you-drive or teen driver applications, as well as, finally, buy-here-pay-here products for the sub-prime auto lending market.
Given the urgency of the subscriber erosion situation, it is likely that OnStar will bring multiple solutions to market including, no doubt, a smartphone application offering with roadside assistance, concierge services and other location aware functions. OnStar has shown such a concept in the past but never pulled the trigger on introducing it to the market. Now, such an application is seen not only as a potential source of revenue but also as a brand builder and, of course, an extension of the OnStar platform.
Preuss has sent mixed messages regarding the positioning of OnStar going forward. In the CNNMoney report he says the focus will be squarely on vehicle safety. In an Automotive News article announcing his appointment he stated that "fun" will be a priority for OnStar going forward. There is not doubt, though, that OnStar is being re-architected and repositioned to be competitive in a world characterized by social networking and device connectivity.
What is most likely in the short-term, is an aftermarket offering, most likely in the form of an OnStar-equipped mirror. In fact, Gentex, which manufacturers an aftermarket replacement version of the OnStar-equipped mirror, stopped distributing its product through distributor Mito two months ago, at the request of GM. OnStar is likely taking control of the distribution of the product in preparation for mass market sales.
An introduction of the OnStar brand into the retail automotive aftermarket is in keeping with growing interest in vehicle connectivity, navigation and tracking in general and telematics in particular. The Federal government has made known its interest in standardizing event data recorders in vehicles as a result of the recent Toyota unintended acceleration recall debacle. And companies as varied as TomTom, Hughes Telematics, Guidepoint, Rosen Entertainment and Pioneer Electronics are enabling roadside assistance capabilities in their devices and systems.
Guidepoint is the single largest incumbent supplier of aftermarket telematics solutions. The company distributes primarily through car dealers and maintains its own call centers for roadside assistance and concierge calls. Guidepoint recently partnered with Rosen to bring an aftermarket head unit to the retail market with an on-screen button to access call center services. Hughes Telematics is another company looking to enter the aftermarket. Hughes has had an aftermarket offering ready for more than a year and is believed to be putting the team together to bring the product to retail.
Given the fact that OnStar has been hiring executives to staff a regionalized sales force, the indication is strong that the group is target both consumer opportunities through retail and commercial opportunities. And an offering to be sold through expediters to competing OEM dealers is not out of the question. (After all, what can a Ford dealer do when the customer asks for OnStar by name?)
The key difference, and main advantage, of OnStar remains the automatic crash notification - a function which may be problematic to offer in an aftermarket device. No one believes an aftermarket solution will be an easy sell at retail. But an OnStar-branded device will likely get serious consideration from consumers. The wild card for OnStar will be the precise nature of its reconfiguration and repositioning.
The best news is that OnStar is not sitting back in the face of incursions by Google, Apple and others into the vehicle connectivity and infotainment business. The challenge will be for OnStar to demonstrate its ability to retain its industry leadership position and maintain or grow its subscriber base. The announced hirings at OnStar and relaunch indicate much more than a business model tweak for the group.
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