Growth of Wireless Devices Bodes Well for GM’s OnStar Technology
With OnStar subscribers projected to quadruple by year’s end to 1 million, and then quadruple again to 4 million in 2003, the wireless safety-and-concierge service represents an enormous potential revenue source for General Motors Corp.
If half the subscribers choose the $199-a-year service and half go for the premium $399 service, that would mean at least $1.2 billion in annual sales in three years, nothing to sniff at, even for a company whose revenue topped $176 billion last year.
Already Toyota’s Lexus division has said it will install OnStar in certain U.S. models by the end of this year, and Honda’s Acura line will make it available next year. And GM is looking to expand OnStar to overseas markets, initially in Europe.
GM is counting on consumers’ deepening addiction to wireless applications, from cellular phones and hand-held data assistants to Web-surfing-on-wheels. All of that can be delivered to wired-up users in cars through OnStar, which is signing up 1,500 new subscribers a day, a rate projected to grow to 5,000 a day by the end of the year.
“Seventy percent of all cellular calls made in the United States are made from in-vehicle,” said Mark Hogan, president of E-GM, the auto maker’s electronic-commerce division. That has made cell-phone capability the most important extension of OnStar. Later this year, GM will begin offering a service called OnStar Personal Calling with Verizon, the new Bell Atlantic-Vodafone network.
GM will eventually embed hands-free cell-phone capability in all of its vehicles, and the calling service with Verizon will cover 90% of the U.S.
“We expect to become the largest wireless reseller in the country by the end of this year by virtue of that alliance,” Hogan said.
Whether all the new revenue spawned by OnStar will go straight to GM remains to be seen, since the obvious question is whether GM will spin OnStar off in an initial public offering. Wall Street doesn’t think so in the short run, and GM Chief Executive G. Richard Wagoner pledges to hold onto it for at least a couple of years.
OnStar is not the only player in the vehicle-connectivity business. Texas-based ATX Technologies began supplying wireless emergency communications packages to Ford’s Lincoln division in 1996, the same year OnStar was first installed in Cadillacs. ATX now also supplies such brands as Ford, Mercury, Jaguar, Nissan, Infiniti and Mercedes-Benz.
ATX is convinced that an OnStar IPO lies down the road.
“They’ll spend $90 million on Batman ads, spin it off, and it will have a market cap bigger than General Motors itself,” ATX President Steve Millstein said. GM’s market capitalization today is about $32 billion.
