DETROIT – The number of telematics subscribers will increase significantly in the coming years as more auto makers offer the service, but a myriad of privacy issues confront the much-anticipated introduction of real-time traffic updates, industry experts say.

Although industry giants such as General Motors Corp.’s OnStar and Houston-based ATX Group Inc. have been offering telematics services, such as roadside assistance and hands-free calling for nearly 12 years, the technologies have struggled to catch on with consumers.

GM, for example, boasts 5 million OnStar subscribers – a small number when compared to the 55.3 million light vehicles the auto maker has produced over the system’s 11-year lifespan, according to Ward’s data.

However, new telematics providers continue to enter the market, while established players are beginning to offer new and more compelling features across a broader range of vehicles.

“Our retention rate is actually quite healthy,” Nick Pudar, OnStar vice president-planning and business development, tells the media at the recent Ward’s Auto Interiors Show here. He notes the auto maker will make the service available in nearly all of its vehicles this year for the first time.

“The real, fundamental challenge is how do you serve a broad base of customers long-term,” he says.

GM research shows users overwhelmingly cite OnStar’s safety and security aspect as its best feature, Pudar says. But other features, such as entertainment, are becoming more important to consumers, he says.

“So how can you develop these platforms so that you can build extensions that are meaningful at price points that make sense and appeal more broadly,” Pudar says. “With Turn-By-Turn Navigation, as an example, we were very thoughtful and careful in how we leveraged the existing Safety & Security platform to deliver that feature at an effective price point.”

OnStar includes Turn-By-Turn with its base Safety & Security package for about $20 a month. The provider launched Turn-By-Turn in GM vehicles in 2007, and for the ’09 model year will add a new feature that allows a subscriber to download directions to his navigation screen from an advisor, such as Mapquest.com. He also can download up to five destinations ahead of time and start the route guidance at any time during his trip.

Unlike OnStar, ATX provides its service to multiple auto makers, such as BMW AG, Mercedes-Benz brand and PSA Peugeot Citroen.

At 1 million subscribers, ATX’s customer base pales in comparison to that of OnStar. But Tod Farrell, ATX vice president-customer solutions, says the provider’s customer retention rate is about 70% and growing.

“That (percentage) leads the cable television industry and other recurring-revenue businesses,” he says. “Customers who have the system love the system. We’ve always said they will come for safety and security and will stay for door-unlock and everything else. And that’s proving true.”

As ATX introduces new services, such as a proposed plan to provide vehicle diagnostic updates to an owner’s mobile phone, Farrell says retention will increase even more.

“It’s taken a long time, but if you look at airbags and items like that, it took them awhile (to catch on with consumers), too,” he says.

OnStar and ATX soon will face competition from Hughes Telematics, which comes on line next year with its Mercedes and Chrysler LLC customers. CEO Jeffrey Leddy estimates Hughes will provide telematics units for “tens of millions of vehicles in the next several years.”

The Telematics Research Group Inc. estimates a 26% attach rate, which means the number of vehicles on the road in North America with a monitored telematics system, whether subscribed or not. But that number is expected to grow to 53% by 2013.

A monitored system, such as OnStar, embeds a telephone in the vehicle and is considered more reliable but less scalable than non-monitored systems that use the Bluetooth connectivity of a driver’s cell phone.

Telematics hardware maker Continental AG recently said it would like to expand its presence beyond the non-monitored Sync multi-media platform that it and partner Microsoft Corp. provide to Ford Motor Co.

Brain Droessler, Continental director-North America customer centers, says the growing importance of digital and portable connectivity to vehicle interiors will drive growth in the sector.

“It’s impacted what we expect out of our interiors, and auto makers are using technology to differentiate themselves,” he says.

Droessler envisions a time very soon when the vehicle will become just another “node” on the network, with mobile phones playing the greatest role.

“(Vehicles have) become the remote controls of our lives,” he says.

Vehicle-to-vehicle and vehicle-to-roadway connectivity, a concept currently being tested by a number of auto makers, industry associations and universities, also will drive telematics growth, Droessler says.

“It will take vehicle safety to another levels,” he says, while saving fuel by allowing the driver to adjust his driving to upcoming road conditions or program an alternate route if trouble lies ahead.

But the day when drivers receive real-time traffic updates, leveraging data such as the whereabouts and speeds of other motorists, won’t come without wading through a plethora of privacy issues, Pudar says.

“There are lots of land mines and pitfalls to work through, but the benefits will be real,” he says. “It has to have transparency, it has to have consumer choice, and it has to have opt-in, opt-out at any time. (But) it is a space, I think, that will grow naturally.”