A TTAC source has pinged us: “‘I’ve just heard 2nd hand that the Delphi OnStar team has had all their GM contracts canceled. It seems that GM may be getting rid of OnStar completely, but it isn’t clear when that would happen. This sounds like a pretty good business decision to me since cell phones have become so widely adopted, and navigation systems are getting cheaper.” This tip flies in the face of a recent Reuters report, in which the head of said OnStar claimed the service was wildly profitable. OK, “highly.” Which is the same as “wildly,” given GM’s current slide into C11. Anyway, “GM does not break out its revenue or profits from OnStar, but had said the division had turned profitable in 2003 and has been steadily and more profitable since. The division receives part of its revenues from consumer subscription fees.” One possible explanation (just in): GM is simply “de-sourcing” Delphi as OnStar supplier, as it prepares to deep-six the bankrupt parts-maker’s contracts. Or something. But wait! More tipster action from an ex-OnStar employee after the jump.
OnStar is marginally profitable. As stated by one of your commentators, a lot of the satellite service’s revenue comes from “transfer pricing” from GM. GM pays OnStar roughly $200 to $300 per car sold with OnStar on board. Somehow, OnStar has managed to convince themselves that this is “real” money. More proof that GM is excellent at ignoring reality.
OnStar also gets to book all of the money that XM radio pays them for putting XM receivers on cars. It’s nothing more than an accounting trick that makes OnStar look A LOT bigger on paper than it really is. And there is virtually no cost offset to this revenue. OnStar just cashes the checks for GM.
OnStar also receives revenue from subscription renewals. The overall renewal rate is well over 60 percent; 50 percent after year one, higher after that). The margins are very high; higher than the auto business. And that’s an extremely impressive retention rate. But remember: OnStar had access to GM’s bloated advertising budget. They’ve flooded the airwaves for years.
There’s also quite a nice revenue stream coming in from GM used vehicles now.
So what is just the OnStar portion worth on the open market? I’d guess the number starts with an “m” not a “b”. I mean if it was worth so much, why wouldn’t we have sold it already with the rest of the furniture? One possible reason: Red Ink Rick saw OnStar as one of his babies. Henderson doesn’t feel that kind of ownership.
It’s also worth noting that GM dumped billions of dollars into OnsStar (in the late ’90s) before it turned a profit. I’m pretty sure it still hasn’t broken even over it’s entire life.
I’ve heard that OnStar is talking to Verizon. Makes sense. Verizon provides the bulk of the cell network for OnStar. OnStar’s book value on how long its managers think they could maintain their existing customer base and whether or not they could get other carmakers into the mix. As most other automakers have started their own OnStar-like programs already, I’m not sure there’s a lot of potential for new business.
And as another commentator pointed out, technology marches on. Can OnStar keep up with portable devices with a younger clientele?
If anyone knows more on OnStar’s life (or death) during wartime, please email robertfarago1@gmail.com.
and for those who might have an onstar device but don’t use it here’s an interesting hack
Unfortunately not all of OnStar’s services can be duplicated with a cellphone and a tomtom, namely the crash assist and door unlock. But that’s probably not where they make the money, since both are in the lowest package and are given away free for a year with every new GM vehicle. Nevertheless, would be a shame to lose the entire service, assuming the rumour is true.
A wild ass guess is that accounting tricks kept it going. Let’s say GM sells 1 million cars with OnStar and gives a year of free service.
I’m betting that GM comps OnStar for 1 million x a monthly fee and then it’s up to OnStar to turn those into long term subscribers.
So maybe when GM sales were chopped off at the knees, the cash flow to OnStar stopped.
This would result in a “highly profitable” division that immediately becomes a boat anchor when the comps stop flowing from the mother ship.
No inside info.. Just a guess.
@HEATHROI
Maybe it’s just me, but that hack seems like an awful lot of work to avoid paying $25 for a GPS receiver off ebay.
Why climb a mountain if you can take an elevator to the top of a skyscraper.
sometimes its fun to take the hard way.
Iw
thats what the article sounded like to me too; or potentailly if every car with onstar installed signed up, that s what that GM would get.
They could be selling it to AT&T.
On a cash flow basis it has got to be profitable to continue to service the people who are already paying $239/year for the service.
Burglar Alarm companies can charge $50-100 year to monitor an existing system.
Now on a going forward basis I doubt that the low percentage of people who sign up for the service justify installing the hardware in most vehicles.
OnStar was the one good thing which came of the GM/Hughes merger. (How many people have forgotten about that?) However, it has two big problems:
1) Only available on new GM vehicles (yeah, there are a few exceptions, but mostly true). GM tried to leverage OnStar as a way to sell vehicles, which in turn limited the market for OnStar.
2) OnStar hasn’t kept up with technology. The massively fumbled switch over from analog to digital service was a warning shot about how slow to adapt the GM/OnStar people were.
Microsoft’s Sync system or just about any in-car bluetooth communications system could very easily add the emergency call feature as long as the user has a modern bluetooth enabled phone paired to the car. Just make an airbag deployment event automatically cause the paired cellphone to dial 911. Cell phones already have a GPS location device in them and pass that information on to 911. Ta da, OnStar out of the loop.
Making the remote unlock feature work is probably a little harder, but smart engineers should be able to figure that one out.
My guess is, OnStar is dead. I wonder what the second, third and fourth year user retention rate of OnStar is.
The only people I know who subscribe to OnStar are all elderly. “I fell down and can’t get up. I also crapped my Depends. OnStar, HELP!”
For many years I’ve thought that OnStar should be spun off into its own business. Sell its service or OEM its service to multiple manufacturers, and thus become a “platform” for automotive mobile assistance.
I know for years it was indeed “wildly” profitable (my info is about 5-8 years old), but not spinning it off was a missed opportunity I think.
is it just me, or isn’t (or didn’t) ON STAR use satellite phones?
And thus could work any/every where on the planet (where there’s no cell coverage)?
Damn! there goes the last really good reason to buy a GM car!
John Horner :
Microsoft’s Sync system or just about any in-car bluetooth communications system could very easily add the emergency call feature as long as the user has a modern bluetooth enabled phone paired to the car. Just make an airbag deployment event automatically cause the paired cellphone to dial 911. Cell phones already have a GPS location device in them and pass that information on to 911. Ta da, OnStar out of the loop.
Starting with model year 2009 all Sync equipped cars have 911 Assist (or can be upgraded for free or a very low cost depending on the dealer for very early 2009 builds) which does exactly as you say. Similarly all 2010 FoMoCo vehicles come equipped with the hardware for Sync Traffic, Directions, and More (software isn’t ready yet, but should be soon, and this will be a free user installable update via USB drive) which offers the turn by turn directions, traffic updates, and directory assistance that OnStar offered, but uses the drivers cell phone to dial through a toll free number to download the info back into the car (service is free for the first three years).
Come to think of it, I haven’t seen/heard as many commercials for OnStar in the last few months.
I like the last Onstar commercial – driver avoids hitting cute little deer and runs into a tree – Onstar detects the airbag deployment…
Cut to scene in 911 call center, then police department, then fire department, all shown ready for action when the ‘Onstar’ call comes in – cut to emergency vehicles closing in on accident scene on lonely mountain road…
To the elderly or uninformed, it appeared that Onstar had its own emergency personnel, on call 24/7 “just for you”, and that somehow an Onstar event would have priority over other emergencies –
Nope, ‘get in line, Grandma!’
Outsource to India?
Please enlighten me on the subject of locking yourself out of a (GM) car. Is it still possible to hit the lock button inside the (GM) car (with the door open), get out, slam the door behind you, and find yourself locked out? I know that was possible on my 86 Suburban, but I haven’t had a car since then where I could do this. On none of our family’s 5-series Bimmers (’98 and ’05) is this possible. I am thinking along the lines of whether GM is using obsolete technology on purpose to have an argument for selling OnStar subscriptions.
My Volvo had “On-Call” as an expensive addon, until analog cell service was terminated with extreme prejudice. Now I have just an open cubby in the dash, a useless hard-wired handset (!) in the center console, extra buttons on the steering wheel, and a lumpy speaker in the driver’s headrest. It supposedly did pretty much what OnStar offered, but had so few subscribers that they declined to offer a digital upgrade and dropped the service (implied sigh of relief). The only times I used it were for required tests of software patches. I don’t know if they would have come to my rescue. Thanks again, Ford. At least, Microsoft wasn’t involved in that version.
is it just me, or isn’t (or didn’t) ON STAR use satellite phones?
And thus could work any/every where on the planet (where there’s no cell coverage)?
No this is pure GM marketing myth… Onstar uses the cell network just like the phone on your hip..
OnStar is able to pull in signals when your regular cell phone can’t for two reasons:
1) Battery strength… Your regular cellphone has size and weight restrictions on the battery… The battery that supports your Onstar system weights about 20 pounds.
2) Antenna… The Onstar antenna is larger and mounted higher then the antenna on your cell…
Don’t kid yourself… OnStar does NOT use Satellites for voice or data transmission. Never has probably never will.
The system only uses satellites for GPS location.
Some more Onstar bad news… Onstar relies 100% on the CDMA cell system which most people agree is a dying platform (GSM is taking over)… There are lots of places in North America where Onstar is dead. CDMA will eventually be phased out and replaced with something else … and we will have “dead analog OnStar” phase 2.
Could be that Delphi is simply being replaced as a hardware supplier by .. who … Continental? Motorola? Hughes Telematics? Some Japanese supplier?
OnStar definitely does not use satellite phones, it uses the Verizon CDMA network. However I’m not aware that CDMA is going away anytime soon. Verizon is going to adopt the 4th generation upgrade for the GSM networks, but that does not mean it’ll shut down the 3G CDMA networks or that the new LTE 4G system isn’t backwards compatible … not sure about that.
Among people who follow these things there is a big debate over whether it’s better to use a system with built-in cell phones (OnStar) or just rely on a Bluetooth relay to the driver’s cell phone (like Sync and most of the systems in Japan).
Personally I don’t understand why people pay money for OnStar but some sure do. My brother in law does because he’s constantly locking himself out.
I guess its not that hard trying calling emergency services on your cell phone when you’re unconscious after a crash.
I’m not aware that CDMA is going away anytime soon.
While vast majority of new LTE will be backward compatible with CDMA.. the CDMA phone will not function in the LTE space… LTE will provide “cooler phones” and after about 2014 better coverage.
While there are no plans to shut down CDMA… (unlike analog cell where GM had about 5 years of warning that they were going to shut this down.. and GM just ignored this reality)… The issue with CDMA is that ZERO dollars are being spent in this space…
The cell phone market is driven by
1) “Cool phones” and a distant
2) coverage…
Today GSM DOMINATES #1 and is quickly taking over #2…in the future it will be LTE… it will never be CDMA.
There will come a tipping point probably within 5 years where it will no longer be cost effective to maintain and support CDMA…
Though none of the carriers will admit it… all are planning to dump CDMA once 4G is up and is ubiquitous. Plan on 5 years or less.
How many people actually use OnStar’s unlock feature? If you have keyless entry and always use it to lock/unlock the door, getting locked out is not even a possibility. Since getting a car with keyless entry 8 years ago, I’ve never come close to locking myself out of my car (knock on wood). If that’s not enough, Ford puts an unlock keypad on a lot of their vehicles.
I don’t think OnStar has a place anymore except for people unfamiliar or hesitant to adopt newer, self-service technologies, and I doubt there are enough of those to keep it running for much longer.
redrum:
The unlock feature of OnStar is pure marketing. Not really very useful given today’s cars, but people are still scared to death of being locked out of their cars.
The dog is inside! The baby is inside! Your late for an interview! Your mom just fell and you can’t get there because you were soooo dumb that you locked yourself out of your own car!
What do you do? Call the cops? They will think you stole it! They will think you’re stupid! It will take hours to get help! OMG! OMG! OMG!
Onstar appears to be a dying technology. At one point, OnStar service was available on Acuras, VW/Audis, Subarus, and Mercedes-Benz.
Today? Not so much.
I don’t know if GM pulled the service or the other OEMs left OnStar, but but I do know all these cars all have homegrown telematic platforms. The new systems either match most of the OnStar features, or in the case of Navigation systems, blow OnStar our orf the water (On Star’s turn by turn navigation? I’ll print out my own for free on MapQuest, thank you very much…).
Even if OnStar is not going away, it is a dying system that soon will. The overall problem is not the concept, it’s a function of cost to the consumer + an outdated platform. If they were smart, they’d kill it now.
wll no more can you put onstar on your verizon phone bill an to get the phone service is way to high for me i think i wish i had got a ford