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Telematics: Can Great Tech Find an Encore?

Barry Epstein should be in one of those OnStar radio ads. During Hurricane Wilma in 2004, the PR executive in Boca Raton, Florida, couldn't get through to relatives in New York via land line or cell phone. But when a desperate Epstein hit the OnStar button in his Cadillac CTS, an operator for the General Motors telematics service went above and beyond the call of duty and patched his call through.

Oh — and about once a month, OnStar remotely cracks open his car after Epstein has inadvertently locked his keys in it.

Yet Epstein barely taps OnStar for anything else, not even the oral navigation that is the service's bread and butter. "I don't have much use for that," Epstein says. "I've got a pretty good sense of direction, and I usually use MapQuest."

Epstein personifies a quandary for OnStar and the industry's other telematics services: BMW Assist, Mercedes-Benz's TeleAid, Lexus Link and AcuraLink. Telematics is a marvelous technology indeed, using GPS satellites and powerful microchips to communicate with drivers, trip switches in the vehicle, monitor safety and other systems, and diagnose trouble. And clearly, its car safety and security applications have created grateful constituencies among each automaker's ownership base. Below, a chart comparing the services' various offerings demonstrates why.

"Our customers express a high level of satisfaction with TeleAid," said Sascha Simon, telematics supervisor for Mercedes-Benz USA. "Mainly they value the peace of mind that, whatever happens to them, someone is looking out for them."

But telematics also remains a powerful capability in search of more appreciation. Consumer interest has fallen short of just about every expectation from a decade ago when OnStar began arriving in some GM models. Telematics hasn't made vehicles into roving Internet browsers, as expected. Acura has even dropped some functionality from its system. Most upscale vehicles now sport increasingly capable in-dash navigation systems with voice capabilities reminiscent of telematics systems. And now the thorny issue of analog-to-digital conversion of mobile communications is plaguing each telematics provider.

Telematics "remain way down on the list of what attributes people think are important in a vehicle," said Art Spinella, president of CNW Marketing Research, in Bandon, Oregon, which surveys consumers about auto matters. "It's a hard sell. It's another subscription they have to buy."

OnStar Remains the Icon
GM's OnStar has succeeded in becoming a household brand, and it has more than 4.7 million subscribers in the United States and Canada. It becomes standard on every GM model this year, including one year of complimentary services. After that, GM charges $16.95 a month for its safety and security offerings, and $26.90 a month for a broader package (Directions & Connections) that includes advisors who make restaurant suggestions and hotel reservations, among other benefits.

For a while, GM focused on trying to make OnStar into a mobile portal to the Internet. But a few years ago, it got wise and began heavily marketing OnStar's core safety and security services such as notification of emergency authorities when an airbag is deployed. Radio ads featuring real-life dramas between anxious subscribers and soothing, capable advisors created a real marketing groove for OnStar.

At the OnStar Command Center in one of the Renaissance Center towers in Detroit, a cluster of engaged technicians and supervisors underscores the seriousness of OnStar's mission. Overseeing various levels of operators at OnStar's four service centers around the country, they rely on, among other things, huge digital screens arranged across the front of the control room. These include cable-TV news feeds, a map monitoring severe weather county-by-county across the United States, other maps displaying each active OnStar call and complicated metro-area diagrams of 911-emergency jurisdictions.

OnStar's emergency operators get the same training as 911 dispatchers. "We're not there to provide medical assistance but to understand who we're talking to, and how best to make the handoffs," said Terry Inch, OnStar's director of service-delivery operations.

This investment has garnered OnStar a 60 percent renewal rate by consumers after the free year, a proportion that has risen steadily over the years — albeit slowly. And to continue to boost that, OnStar has been unveiling more services.

One is a beefed-up remote diagnostics program. OnStar can monitor the vehicle's essential functions and systems and notify drivers immediately of any big problems as well as keep them up to date on routine-maintenance needs. In fact, now OnStar will e-mail subscribers a monthly status report as part of its basic services. More than half of its customers have signed up.

OnStar also has begun offering turn-by-turn navigation. The driver asks for directions to a destination, and if it's one of 10 million points of interest nationwide, a computer-generated voice on OnStar unreels the directions one by one to the driver over the course of the trip — however long that is. OnStar customers already are using this service about a half-million times a month. After the first year, it's provided as part of the premium Directions & Connections package.

And GM announced April 24 that it's going to be testing an enhanced version of turn-by-turn that will allow drivers to look up five destinations on and upload them to OnStar before getting into the vehicle. Then they would be available as part of the turn-by-turn function. "This will be an additional way to get value out of the service without any change in price," OnStar president Chet Huber said.

Have Luxury, Will Travel
While GM is the only company that has made a commitment to telematics throughout a broad range of vehicles and price points, most luxury brands offer telematics as well.

"A very high percentage of owners" have signed up for BMW's service, reported Fran Dance, services manager for BMW Assist. It's standard in most top-end BMWs and part of a premium package on some others. On 2007 and later-model-year vehicles, BMW Assist is free for four years. Both BMW and Mercedes-Benz outsource their emergency-operator services to ATX Group in Irving, Texas.

But BMW Assist is more assertive than others about communicating with owners concerning vehicle-service needs, including notifying dealer-service advisors who then call subscribers. According to Dance, a dealer rep might tell a BMW Assist subscriber, "I've received a message from BMW that says you need an oil change in about 750 miles. What is a convenient date? Do you have alternative transportation needs?"

"There's a 180-degree paradigm shift here because you don't need to call us to schedule your maintenance needs — which we pay for anyway. We call you to schedule a convenient appointment."

TeleAid is free for the first year and is standard on all Mercedes-Benz vehicles except C-Class models, where it's a first-year option — for a pricey $820 a year. ("I'm working on changing that," Simon said.) Thereafter, TeleAid offers a basic package for $240 a year and a Luxury and Convenience bundle for $450 a year, with discounts applying as time goes on.

But where BMW touts remote diagnostics, Mercedes-Benz doesn't yet offer it. "We're looking into it very heavily," Simon said.

AcuraLink is a "lighter" version of telematics. It communicates mainly through the navigation screens in the vehicles or via voice. AcuraLink emphasizes convenience features such as real-time traffic reports that help subscribers route around trouble spots. But the company hasn't found great demand for the kind of safety and security package that other telematics providers feature.

"We offered it free for three months and [renewal] was very, very low," said John Watts, Acura's manager of product planning. "It's less important to the younger customers who are [Acura's] main demographic."

For three years, AcuraLink was actually manned by OnStar and so provided more robust services; Lexus Link still operates under that arrangement. But Acura's relationship with OnStar ended last year, partly because OnStar wanted to make its own brand name more prominent, Watts said.

Conversion to Digital Causing Fits
Another reason the OnStar-Acura deal ended was over a technological obstacle that looms large for the telematics industry: the phasing out of all analog equipment as everything converts completely to digital. In 2002, the Federal Communications Commission ruled that the nation's cellular carriers must offer all-digital access to customers by 2008. Carriers won't be required to support the older analog cellular network after that time. Acura's current service won't be affected by the transition.

About 90 percent of OnStar subscribers have vehicles that either are capable of operating on the digital network or can be upgraded to do so, at a cost of $15 at a dealer. And more than 99 percent of subscribers in GM vehicles produced after the government's ruling will be able to continue to receive OnStar services. The percentages are similar for TeleAid, but it will cost Mercedes-Benz customers $600 to upgrade to new digital systems.

Just a relative handful of customers of either service are in vehicles so old that they can only operate on analog. GM is offering them a coupon for an additional year of OnStar service if they purchase a new GM vehicle or a certified-used vehicle from 2006 or later.

As for Mercedes-Benz? "A couple thousand model-year 2000 vehicles can't be upgraded for technical reasons," Simon said. "We would have to rip out antennas and wiring harnesses and replace everything and would have electromagnetic-interference problems anyway. So we're not offering a fix because we're concerned about the safety of our customers." For more details on the struggles to convert from analog to digital, see "Telematics Digital Transition Hits Speed Bump".

"Whether you're upgrading your telematics system from analog to digital or starting with a brand-new system, it's very important to read the service contract first," said Edmunds Senior Feature Editor Joanne Helperin. "The service may — or may not — be transferable to any new car you might buy. And if someone buys your used car with the telematics service already in it, they may not be able to use it, either."

Challenges to Future Growth So telematics services have gained lots of fans for automakers over the last decade, and the spread of new applications such as remote diagnostics will continue to add to their ranks incrementally.

But at least two factors have undercut — and will continue to inhibit — any great acceleration in growth. First, today's in-dash navigation screens on many models also offer one of telematics' essential services: help in getting from here to there. That's one reason Ford and Chrysler, for example, haven't been compelled to offer their own telematics services.

Second, telematics suffers from the same sort of commoditization that has befallen all sorts of fancy automotive technologies in the era of the chip, ranging from antilock brakes to memory seats. Many auto buyers simply have come to expect a helpful, disembodied voice in their car these days — without paying a big premium for it — just like they expect four wheels.

But unlike four wheels, telematics simply isn't a "gotta have" for most American car buyers.