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GM sticks with OnStar, vowing to double deployments by '06

Posted: 01 Nov 2004 ?? ?Print Version ?Bookmark and Share

Keywords:general motors? safety-and-security model? telematics? onstar?

General Motors Corp. reinforced its commitment to its "safety-and-security" model of telematics recently, announcing that it will double the number of its OnStar-equipped vehicles to 3 million a year by 2006.

With the announcement, GM served notice that it is sticking with a business model and a mobile-phone technology that many believe will never attain the booming success that had once been envisioned for telematics. It also provided solid evidence that OnStar, once believed to be struggling, now has a solid base of business for several years to come.

"OnStar's biggest customer has just doubled up its order," said Phil Magney, founder and principal analyst for the Telematics Research Group. "That's a significant boost for them."

GM executives said in a press conference that the automotive giant will boost production from 1.4 million vehicles per year using OnStar today, to 2.2 million in 2005 and 3 million in 2006. The increase will be spread across 50 models of the 5.5 million cars and trucks that company builds in North America every year.

OnStar's business boost comes at a time when a few automakers have again started to experiment with telematics following a three-year drought in that market. In July, Italian automaker Fiat SpA said it was partnering with Microsoft Corp. to build an electronic telematics reference platform that it will deploy in all its car models. Similarly, Ford Motor Co. recently announced it was teaming with Sprint on a handsfree Bluetooth communication system, and Honda Motor Co. announced a voice-based navigation system.

Formula for success

Industry analysts said recently that the spate of activity in the telematics market reflects an attempt by the automotive community to find the success formula for marrying cellphones to automobiles. Much of the industry now believes that that formula will involve the use of cellphones, wireless Bluetooth technology and entertainment mediums such as MP3 and video content.

In contrast, GM's OnStar division has clung to the original vision it espoused in 1996, when it launched the technology in Cadillacs. Its vision, then and now, revolved around the use of 3W, permanently embedded phones as an aid to safety and security. Features included "911" notification of airbag deployment, remote unlocking of doors, tracking of stolen vehicles and turn-by-turn verbal directions from OnStar representatives over the phone. OnStar executives said that the GM division typically records 700 airbag notifications, 11,000 emergency calls and 30,000 door-unlock calls every month.

Many industry analysts have contended, however, that OnStar's business model has failed to strike a chord with consumers. A 2002 study by "The Hansen Report on Automotive Electronics," for example, questioned whether the GM division was turning a profit, and estimated that 58 percent of its subscribers were not renewing their OnStar service after the first year of use.

"No one knows what the killer app of telematics is, but we do know that safety and security isn't it," said Magney of the Telematics Research Group.

Recently, OnStar executives said that the service's one-year renewal rate has jumped to a current high of 60 percent.

"Some companies thought that telematics meant Internet access in the car, and that people would line up with their credit cards to pay for it," said Thilo Koslowski, principal automotive analyst for Gartner G2. "But OnStar showed that safety and security is a feature that some consumers really want."

Koslowski believes, however, that future demand for telematics lies in the use of outside devices such as handheld MP3 and DVD players that can be plugged into standard interfaces on the vehicle.

- Charles Murray

EE Times

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