GM: The New Service Company

[mgescuro]

GM: The New Service Company
...yet another commentary by mgescuro...

When one thinks of General Motors, one usually thinks of a large, manufacturing based company. General Motors is the builder of auto parts, auto systems, and automobiles themselves. However, recent development and announcement made by General Motors in recent week points to a seemingly fundamental change in their business strategy – selling services (presumably high margin services).

True, General Motors isn’t new to selling services. OnStar has been a part of General Motors automobiles for nearly a decade. Cusomter who buy GM vehicles are typically given a year of OnStar service. Then comes the annual fee to maintain OnStar service.

Assume the life of a car is 5 years. At $200 a year, for the Safe & Sound plan, a typical GM customer can spend $800 extra to maintain Onstar, which is essentially a convenient insurance program. It gives customers piece of mind while driving. GM sells approximate 4.5 million cars in the US, each available with the Safe and Sound plan. Assuming GM retains 50% of those customers for the next year, at $200, that’s $450,000,000 in additional revenue. GM has already incurred the cost to develop and deploy the infrastructure for Onstar. What does this mean for GM?? A massive infusion of ready cash!!!
Now we know that there is a Direction & Connection system for Onstar at $400 a year. Now assume of the 50% that decide to renew Onstar, 10% go for Direction and Connection.. That’s $495,000,000 in additional revenue.
Now GM has announced Onstar Turn-by-Turn Navigation for an additional $100 added to the Safe & Sound plan. According to GM, by 2007, there will be 2M cars capable of using the Turn-by-Turn service. Assume 25% of those customers choose to retain Turn-by-Turn Navigation. That’s $150,000,000 extra in GM’s pocket.

Obviously, GM’s finance department has run far more complex and “real world” scenarios based on their ready data, but you get the picture. GM is attempting to monetize their existing services further in order to gain additional revenue. This ultimately will support GM’s bottom line. Also, this support the perception of GM’s cars. No other car company has a support system as extensive or as advanced as Onstar. The added security of using Onstar as a lojack system or an emergency system appeals to many customers.

What I find the most intriguing is the convenience of getting an email with the status of your automobile’s systems is something many customers find important, as many live busy lives and don’t have the time to know when to take their car in. However, this also has the added effect of subtly reminding the customer to get their car to the dealership to spend more money on GM parts and services and to support the GM dealership network. The effect is, a GM customer goes to a GM dealership to service their GM car. A relationship is formed between the customer and the dealership, and as that relationship is formed, the customer will tend to go back to that dealership perhaps in a few years to trade in their car or buy a 2nd or 3rd car. This again gives GM an advantage for gaining and retaining long term customers.

But there is a certain subset of customer that don’t want to pay for these services. Many would prefer the upfront cost of a $1500 DVD-based navigation system over a $300 annual service. Plus there is the added perception of having navigation screen over a smaller, perceived lower-tech LCD screen. Also, many customers can view GM’s new services as a way of “nickel and diming” you after you’ve bought your car. Many people just want their car with no additional for-pay services attached, and they will see it as a nuisance.

Ultimately, if GM offers cars with a navigation option instead of forcing customers to resort to the Onstar paid services, then this negative perception is really unfounded as GM is providing the choice. But GM would prefer you pay for the Onstar service. It’s additional money in their pocket with minimal investment on their part. And for GM... That’s not a bad thing.

[stevecmh]

i really doubt they have a 50% reatainment rate for ONstar

[mgescuro]

Originally Posted by stevecmh

i really doubt they have a 50% reatainment rate for ONstar

The retention rate for Onstar is 65%.
http://www.consumeraffairs.com/news0...gm_onstar.html

I used 50% for simplicity's sake.

[ChevroletRevived]

And that only means more money, proving your point. Good article. I agree, GM, espessially with the new warranty, good services, and great cars has a great chance at gaining and retaining customers - and profiting at the same time. Bingo. Way to go!

[GM_Fanatic]

Good commentary.

It also made me wonder if there are other services that GM could implement...? I am drawing a blank, but it seems like there is potential for stuff like this. Just a thought.

[MrMax]

Nice insightful commentary. More reasons to be optimistic about the future. PLUS... shows that the finance department is capable of things besides getting the corporate radio into Saabs.

[mecha187]

excellent news.

on another note... I was wondering if anyone knew whether or not OnStar essentially pays for itself with the savings you get on your insurance just for having it. I think it's an awesome feature to have, screw anyone who thinks it's some corrupt GM scam to force it upon people.

and if I'm reading the original post wrong (it being almost 5 am after all) I apologize.

[mitsubishi]

very good point - doesn't GM also allow other manufacturers to use ONStar in their vehicles as well? I wonder how much they get from that as well - every little bit helps right

now if only they could use this revenue to replace all of the old out dated engines... chuckle chuckle chuckle

[IROCNROL1]

Originally Posted by mitsubishi

very good point - doesn't GM also allow other manufacturers to use ONStar in their vehicles as well? I wonder how much they get from that as well - every little bit helps right

now if only they could use this revenue to replace all of the old out dated engines... chuckle chuckle chuckle

I think there have been talks with other manufacturers, but nothing definite
yet.

I agree, the LS7 is nothing but a boat anchor.

[mitsubishi]

Just took a quick look found out something interesting:

http://www.onstar.com/us_english/jsp...odel_years.jsp

Previous Model Years2006 Vehicles Available with OnStar

The following vehicles are available with OnStar. Starred (*) vehicles are not equipped for Hands-Free Calling and Virtual Advisor services. Please note that OnStar is limited to specific models and equipment packages on the vehicles listed.



Acura®
Acura 3.5RL - 2002, 2003, 2004, 2005
Acura 3.2TL - 2003
Acura 3.2CL - 2003
Acura MDX - 2005
Back to top

Audi®
A4® - 2003
A6® - 2003
A8® - 2003, 2004, 2005
Allroad Quattro - 2003
Back to top

Isuzu®
Ascender® - 2003, 2004, 2005
Back to top

Subaru®
Outback H6-3.0 Sedan - 2003, 2004
Outback VDC Sedan - 2003, 2004
Outback L.L. Bean Edition - 2003, 2004
Outback H6-3.0 VDC Wagon - 2003, 2004

Back to top

Volkswagen®
New Beetle® - 2004, 2005 (except New Beetle convertible)
Golf® - 2004, 2005
GTI® - 2004, 2005
Jetta® - 2004, 2005
Jetta Wagon® - 2004, 2005
Passat® - 2004, 2005
Passat Wagon - 2004, 2005
Phaeton - 2005
Touareg - 2005
Back to top


I had no idea that VW was also using onstar

it does appear that only GM is using ONStar for model year 2007 vehicles and that in 2006 only Acura and Isuzu seem to be using Onstar in their cars

and yes, the ls7 is the engine holding GM back

[1G6]

In the spirit of keeping the cash flow going, I hope GM introduces an upgrade for the analog cars that will become OnStar-inoperable in 2009. I've been told that everything from 2004 on back is history when the analog cell systems are turned off.

[Quickening]

Yep its true, I've gone round and round with some Onstar people about this, because I'm pretty pissed off my car isn't being upgraded. Specially when I'm glad to pay for Onstar, I love it. And if they upgraded my car to digital, I could then link my Onstar and Verizon account and they would share minutes.

What would have to be changed? A new digital box and maybe an antenna?

[GotAWD]

Originally Posted by mitsubishi

Just took a quick look found out something interesting:

http://www.onstar.com/us_english/jsp...odel_years.jsp

it does appear that only GM is using ONStar for model year 2007 vehicles and that in 2006 only Acura and Isuzu seem to be using Onstar in their cars

and yes, the ls7 is the engine holding GM back

i also think that Onstar is a good thing to have and GM letting other companies having it is a good thing. i knew acura had onstar in some of their cars. but why is it that many of the vehicles that are list dont continue on to 2006? is GM just lazy at updating this website or all these manufuactures dont see it as a good thing, or never sold any of it?

and as for the LS7 do what you want with it because i dont see myself with an OHV boat anchor anytime soon

[1999 White C5 Coupe]

Originally Posted by mgescuro

GM: The New Service Company
...yet another commentary by mgescuro...

When one thinks of General Motors, one usually thinks of a large, manufacturing based company. General Motors is the builder of auto parts, auto systems, and automobiles themselves. However, recent development and announcement made by General Motors in recent week points to a seemingly fundamental change in their business strategy – selling services (presumably high margin services).

True, General Motors isn’t new to selling services. OnStar has been a part of General Motors automobiles for nearly a decade. Cusomter who buy GM vehicles are typically given a year of OnStar service. Then comes the annual fee to maintain OnStar service.

Assume the life of a car is 5 years. At $200 a year, for the Safe & Sound plan, a typical GM customer can spend $800 extra to maintain Onstar, which is essentially a convenient insurance program. It gives customers piece of mind while driving. GM sells approximate 4.5 million cars in the US, each available with the Safe and Sound plan. Assuming GM retains 50% of those customers for the next year, at $200, that’s $450,000,000 in additional revenue. GM has already incurred the cost to develop and deploy the infrastructure for Onstar. What does this mean for GM?? A massive infusion of ready cash!!!
Now we know that there is a Direction & Connection system for Onstar at $400 a year. Now assume of the 50% that decide to renew Onstar, 10% go for Direction and Connection.. That’s $495,000,000 in additional revenue.
Now GM has announced Onstar Turn-by-Turn Navigation for an additional $100 added to the Safe & Sound plan. According to GM, by 2007, there will be 2M cars capable of using the Turn-by-Turn service. Assume 25% of those customers choose to retain Turn-by-Turn Navigation. That’s $150,000,000 extra in GM’s pocket.

Obviously, GM’s finance department has run far more complex and “real world” scenarios based on their ready data, but you get the picture. GM is attempting to monetize their existing services further in order to gain additional revenue. This ultimately will support GM’s bottom line. Also, this support the perception of GM’s cars. No other car company has a support system as extensive or as advanced as Onstar. The added security of using Onstar as a lojack system or an emergency system appeals to many customers.

What I find the most intriguing is the convenience of getting an email with the status of your automobile’s systems is something many customers find important, as many live busy lives and don’t have the time to know when to take their car in. However, this also has the added effect of subtly reminding the customer to get their car to the dealership to spend more money on GM parts and services and to support the GM dealership network. The effect is, a GM customer goes to a GM dealership to service their GM car. A relationship is formed between the customer and the dealership, and as that relationship is formed, the customer will tend to go back to that dealership perhaps in a few years to trade in their car or buy a 2nd or 3rd car. This again gives GM an advantage for gaining and retaining long term customers.

But there is a certain subset of customer that don’t want to pay for these services. Many would prefer the upfront cost of a $1500 DVD-based navigation system over a $300 annual service. Plus there is the added perception of having navigation screen over a smaller, perceived lower-tech LCD screen. Also, many customers can view GM’s new services as a way of “nickel and diming” you after you’ve bought your car. Many people just want their car with no additional for-pay services attached, and they will see it as a nuisance.

Ultimately, if GM offers cars with a navigation option instead of forcing customers to resort to the Onstar paid services, then this negative perception is really unfounded as GM is providing the choice. But GM would prefer you pay for the Onstar service. It’s additional money in their pocket with minimal investment on their part. And for GM... That’s not a bad thing.

A lot of assumptions. A lot.

How about some facts on the costs to develop and support OnStar?

[Murrow]

Originally Posted by mitsubishi

Just took a quick look found out something interesting:

http://www.onstar.com/us_english/jsp...odel_years.jsp

Previous Model Years2006 Vehicles Available with OnStar

The following vehicles are available with OnStar. Starred (*) vehicles are not equipped for Hands-Free Calling and Virtual Advisor services. Please note that OnStar is limited to specific models and equipment packages on the vehicles listed.



Acura®
Acura 3.5RL - 2002, 2003, 2004, 2005
Acura 3.2TL - 2003
Acura 3.2CL - 2003
Acura MDX - 2005
Back to top

Audi®
A4® - 2003
A6® - 2003
A8® - 2003, 2004, 2005
Allroad Quattro - 2003
Back to top

Isuzu®
Ascender® - 2003, 2004, 2005
Back to top

Subaru®
Outback H6-3.0 Sedan - 2003, 2004
Outback VDC Sedan - 2003, 2004
Outback L.L. Bean Edition - 2003, 2004
Outback H6-3.0 VDC Wagon - 2003, 2004

Back to top

Volkswagen®
New Beetle® - 2004, 2005 (except New Beetle convertible)
Golf® - 2004, 2005
GTI® - 2004, 2005
Jetta® - 2004, 2005
Jetta Wagon® - 2004, 2005
Passat® - 2004, 2005
Passat Wagon - 2004, 2005
Phaeton - 2005
Touareg - 2005
Back to top


I had no idea that VW was also using onstar

it does appear that only GM is using ONStar for model year 2007 vehicles and that in 2006 only Acura and Isuzu seem to be using Onstar in their cars

and yes, the ls7 is the engine holding GM back

Toyota has used On-Star in Lexus vehicles. They rebranded it "Lexus Link."