Hughes Telematics Inc. says it has won the contract to be the telematics system supplier for Mercedes-Benz cars and light trucks in North America beginning in November 2009.

It will replace Dallas-Fort Worth-based ATX Group, which has been the supplier of Mercedes’ telematics system, branded as Tele Aid, for nearly a decade.

Hughes announced earlier it would be the telematics service provider for Chrysler LLC models beginning in 2009, as well.

But as a new day dawns promising more features and functionality, long-term telematics customers of all auto makers in the U.S. are being forced to swallow a bitter pill.

Suppliers such as ATX and General Motors Corp.’s OnStar, who provide the lion’s share of systems in the U.S., have been informing their most loyal customers – those who have continued service on ’03 and older models – that their analog-based systems will be cut off Jan. 1.

OnStar customers will have to buy a new vehicle to continue service, which now is completely digital. Mercedes customers are being offered a digital package that costs as much as $1,500 to upgrade systems on their current vehicles.

The service cutoff is due to a Federal Communications Commission ruling that allows wireless communications providers to cease analog network service at that time.

GM’s OnStar subsidiary currently dominates the automotive telematics marketplace in North America, with about 5 million subscribers, but rivals big and small are diving into the arena as special electronics features become more popular with drivers.

In a statement earlier this month, ATX says its telematics relationship with Mercedes in North America is concluding November 2009, but says over the next five years it will continue to experience growth, projecting an annual compounded growth rate of more than 30%.

ATX also announced earlier this year its extension of services to other mobile devices, such as personal navigation devices and cell phones, designed to serve the automobile aftermarket and other mobile-market segments. ATX also is embarking on an aggressive expansion of services in the European and Asian markets.

Other automotive ATX customers include BMW AG, PSA Peugeot Citroen and Rolls-Royce Motor Cars Ltd.

The most popular features of telematics systems at present are simple safety and security features, such as remotely unlocking car doors or notifying emergency personnel when an airbag deploys.

But suppliers currently offer – or have in development – a broad menu of features expected to spur future consumer demand, including the ability to remotely monitor maintenance items such as tire pressure and fluid levels as well as track a teenager’s driving habits.

Hughes Telematics President Erik Goldman says his company’s system offers the functionality of both GM’s OnStar system and Ford Motor Co.’s Sync voice-recognition system, plus a wide array of other features that offer benefits to auto makers and dealers. These include the ability to avoid warranty costs and recalls by remotely downloading software fixes, or “reflashing” computer-chip programs.

Another potential benefit: a connection to engine onboard diagnostics systems that will enable vehicle emissions testing to be conducted “over the air,” eliminating the need to actually visit an emissions testing center.

“What is unique about what we are doing in this space right now is we bring a full turn-key solution to the OEM,” says Goldman.

“We manage the development of the hardware. We manage the networks. The OEMs, themselves, are not interfacing with a wireless carrier. We manage the development of services and the aggregation of content. By doing that, we are able to optimize and drive the evolution.”

Mercedes was one of the first auto makers to offer telematics services beginning in 1998 with its Tele Aid.