General Motors' OnStar service has been popular with consumers, but it's facing stiff competition from other providers that offer many of the same services -- often, for free. How can GM stay competitive? By scoring insurance rate reductions for OnStar subscribers.
GM has been working to secure such reductions for some time. GMAC Insurance already offers OnStar subscribers a discount on auto insurance: using odometer readings pulled directly from the vehicle, GMAC calculates subscribers' driving habits and cuts rates accordingly. The less folks drive, the bigger their break. GM hopes to forge similar deals with Century 21 and Liberty Mutual.
Offering a rate reduction for OnStar subscribers makes sense for auto insurers. In many ways, it's no different than the discount that homeowners receive for subscribing to a monitored home alarm service. OnStar can locate stolen cars quickly and call for help in the event of an accident, reducing the amount of time between impact and emergency room. Both save insurers a good bit of dough.
GM needs these rate reductions because, as great as OnStar is, it's fighting an uphill battle. With so many free services that do similar things, and with the economy as tight as it is, it's hard to convince drivers to spend money on subscription services that range from $199 - $299 per year. Maps, directions, roadside assistance, communications: these can all be provided by free smartphone apps or dashtop satnav devices like those from Garmin.
But it's not just fees that put OnStar at a disadvantage on the telematics front; it's also the service's reluctance to embrace the web and social media. By comparison, Ford's Sync system seems much more forward-looking, with a smoother user interface and a design that anticipates pervasive web connectivity and social interaction. OnStar has begun to integrate some of those features, and its smartphone integration is very, very promising, but its in-car interface is clearly playing catch-up.
Even with those disadvantages, we expect OnStar to stick around for some time. GM has done a great job of reminding consumers that OnStar is superior on the safety front, largely because it can call for help in the event of an accident. (You can't do that from a smartphone if you're unconcious or if you can't find your phone.)
We wonder, though, if GM would consider lengthening the OnStar trial period (Ford Sync comes free for three years), or even allowing new car buyers to pre-pay for years of service, so that it's not seen as a monthly fee. More often than not, it doesn't matter whether a service is free, so long as it looks free to consumers.