OnStar Not Sweating Ambitious Plans of Hughes Telematics

DETROIT – OnStar President Chet Huber says he loses little sleep over the growing number of in-vehicle telematics providers, even if the competition potentially could gobble up 75% of the market.

With the 2006 formation of Hughes Telematics and news it would provide the service to ’10 model vehicles from Chrysler LLC and Daimler AG’s Mercedes-Benz brand, the tiny pond of telematics suppliers modestly expanded its shores to include roughly four players.

In addition to the segment-leading OnStar, which exclusively supplies General Motors Corp. vehicles, and newcomer Hughes, the field includes ATX Group and Continental AG.

ATX will continue to supply its TeleAid system to Mercedes until ’10. Continental recently said it would like to expand its presence beyond the Sync multi-media platform it and Microsoft Corp. provide to Ford Motor Co.

Telematics systems, excluding navigation technology, appeared in 11.7% of all ’07 model cars built in the U.S., and every one was an OnStar-equipped GM vehicle, Ward’s data shows. It appeared in 23.7% of all trucks built in the U.S., with 66.1% of those installations from OnStar for GM products. Onstar says 95% of ’09 model GM retail vehicles will offer its service.

Related document: % Factory Installed Equipment on U.S. Domestic Cars and Light Trucks, ’07 Model Year

But Hughes tells Ward’s at last month’s New York International Auto Show the sky’s the limit when it comes to adding auto makers to its customer list, rapidly expanding its market share and perhaps someday soon swiping some the playbook OnStar uses to differentiate GM vehicles from their competition.

Emergence of Hughes Telematics not troubling OnStar’s Chet Huber.

“It’s not like they’re going to wake up tomorrow and be OnStar,” Huber tells Ward’s after a media briefing here on two new navigation enhancements to its service.

“Our question has always been, ‘What took so long?’” he says of Hughes’s proclamation. “We’ve been looking at the research forever. We know what the customer value propositions are, and it has been a surprise to us, frankly, how many serious, technology-oriented car companies have left this space uncovered for as long as they have.”

Huber draws confidence from the GM subsidiary’s wealth of experience and its vast intellectual property. The 13-year-old telematics provider boasts 5 million subscribers; it has conducted more than 88 million service interactions at an average of once every two seconds; and on average OnStar files for a new patent every six days.

OnStar will roll out its eighth-generation hardware with the ’09 lineup of GM vehicles, which means the speed of its product cycle exceeds the 18-month average of the consumer electronics sector.

That’s a lot of ground for a competitor to cover, Huber says, and speaking from experience he warns that pitfalls exist around every corner.

“A lot of folks have some serious learning to do,” he says. “And they are going to be doing it on a very visible, very high-volume stage. I would say to the notion that some other company is standing ready, willing and able to aggregate 75% of the market…there is a reality portion of this thing that will play itself off the way it does.”

Huber appears lukewarm to the idea of stepping too far outside the GM portfolio. OnStar currently offers its service to rival Toyota Motor Corp. for use by its Lexus luxury marque, but it no longer provides limited service to Honda Motor Co. Ltd. and Volkswagen AG.

From the outside looking in, little would seem to prevent OnStar from expanding its customer base again. But later this year, OnStar broadens its service to China from the U.S. and Canada and will begin rolling out its vehicle-slowdown technology that incapacitates cars and trucks involved in a high-speed police chase.

It continues collaborating with MapQuest to enhance its turn-by-turn directional service and works with authorities to recover stolen vehicles. The unit also plays a role in improving GM quality with the performance data it can harvest from the auto maker’s vehicles.

All told, OnStar’s business will double in three years, Huber predicts.

“Anybody who knows (that) has a lot they’re signing up for,” he says. “Any business that knows they will go from never intervening in a high-speed chase, which are very serious events, to (playing) a meaningful part cannot do it casually.

“And anyone who says they are seriously evaluating having service like this launch in China…after the party at the press event, you start to look at the real list of things required to execute in that environment, and there’s a lot of stuff on folks’ plates.

“Professionally executing the geographic expansion of this business to help differentiate GM vehicles is pretty clear marching orders,” Huber says.

At the same time, the irony that a telematics pioneer with brand recognition such as OnStar some day may be one of the segment’s smaller players is not lost on Huber.

“No one is preordained to lead forever,” he admits, adding that sheer volume alone may not suggest greatness going forward. “There are many dimensions that will be the currency of leadership.”

Huber also announces a pair of navigation enhancements, which come free of charge to subscribers. The first – called “Destination Download” – allows subscribers with screen-based navigation systems to download destinations from an OnStar adviser without stopping their vehicle.

“It’s the perfect augmentation to the screen-based navigation some customers prefer today,” Huber says.

OnStar also brings more than 10 million point-of-interest records, refreshed every month, to the navigation system. Typically, screen-based navigation systems use POIs from a DVD that can become dated.

GM will make the service available on more than 80% of its vehicles with screen-based navigations, or roughly 325,000 model-year ’09 cars and trucks.

OnStar additionally announces “OnStar e-Nav,” which allows subscribers to plan their route at MapQuest.com and then download up five destinations to their vehicle. With the press of a button, voice commands help the driver select the destination and the turn-by-turn navigation begins. Drivers can begin their turn-by-turn navigation at anytime, which would allow for errands prior to a trip, for example, and the route guidance picks up wherever.

OnStar will make the service available to retroactively to all 2.65 million GM vehicles on the road today with turn-by-turn capability. Later this year, OnStar will add the service to its screen-based navigation customers.

The launch of OnStar e-Nav follows a pilot program it conducted with MapQuest last year.

Christian Dwyer, senior vice president and general manager of MapQuest, tells Ward’s the company could roll out the download service to other navigation providers, but it chooses not to at this time.

“We could, but we would be very careful about that,” he says, saying OnStar’s track record simply places it far ahead of other navigation providers. “The navigation experience has to be rich and satisfying for our users.”

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