What we think.

OnStar recently announced they are planning on opening their services to non-GM vehicles. In other words, OnStar will cease being a GM differentiator and become a GM product. Seems like a sound business decision, right? I believe it’s an indicator of a much more serious problem that affects all OEMs.

OnStar returns to their roots

It was late 2001 when OnStar hired me as a vehicle software architect. At the time OnStar operated more independently from GM – they sold white-labeled services to other OEMs like Acura and Lexus. It wasn’t long after I started before management turned OnStar into a GM-exclusive feature, shutting down any existing non-GM business and wrapping up any new business in progress.

At the time I thought they were making a bad decision – the marketer in me hadn’t been developed yet – but it was the right move. The entire North American passenger car market consistently hit between 16 and 17 million cars per year, and that amount had been stable. GM knew that OnStar gave them a better chance to steal limited market share from the competitors. That is, OnStar provided better business as a market differentiator than they could ever realize by operating OnStar through a service model. To put this in concrete terms with a bunch of guesstimates: if OnStar enabled GM to capture 1% additional market share, a $2,000 profit margin per vehicle would end up netting $340 million. (This is why car companies spend so much money on advertising!)

Given how remarkably static the OnStar product has remained over the decades, it’s hardly a surprise that GM no longer believes OnStar is a differentiator.

Reaching peak car

However, the status quo doesn’t last for forever. A host of new factors point to an ongoing decrease in the total number of cars sold:

• Changing demographics to younger buyers that have less tolerance for car licensing and fiscal obligations
• Rising mobility options like ride sharing, car sharing, and car subscriptions
• Increasing urban intensification and better availability of public transportation
• Growing awareness of climate change with a resulting impact on family purchases
• Decreasing need for owned cars once autonomous level 5 cars can service multiple riders

Global car sales are expected to cap out. In fact, experts in 2019 were already predicting that we might have reached Peak Car – the point at which total car sales would start falling in response to these trends. While the Chinese market is one of the major growth engines, it too was experiencing contraction.

Of course, COVID-19 changed markets and buying patterns across the globe, not to mention product availability. While the pandemic has provided unanticipated growth spurts in some segments like EVs, a year of working at home and semi-permanent lifestyle changes have overall suppressed car sales even further.

OnStar is the canary

OnStar’s announcement to become OEM-agnostic tells me two things.

Firstly, GM no longer believes OnStar is a differentiator. Given how remarkably static the OnStar product has remained over the decades, that’s hardly a surprise. I worked on some cool advanced R&D when I was there so I know innovation was most definitely happening – it just rarely seemed to make it to customers. So, GM acknowledging the commoditization of its telematics service in such a business-transformative way is extremely telling.

GM may be headed towards the iceberg of plummeting car sales, but Ms Barra is doing much more than I might have expected from an OEM to try to steer them out of the way.

Secondly, GM believes we’ve hit peak car too. If it wasn’t the case, they would double-down on innovation and bring some of their massive patent portfolio into play to keep OnStar as a powerful differentiator. Their move to open OnStar means GM believes they’ll keep selling fewer cars year-over-year – which is a bit surprising. We don’t expect GM to read the tea leaves and react to market trends. They’re like the Titanic and steering the GM ship takes intensive effort.

Avoiding the iceberg

Loosening the shackles on OnStar is GM’s message to OnStar management to make themselves self-viable before they go the way of Maven. Honestly, although it’s a bit late in OnStar’s business trajectory, it’s the right thing to do at this point.

This is just the latest in transformative GM announcements, like going all electric by 2035 or delivery services with BrightDrop. I have to hand it to Ms Barra. GM may be headed towards the iceberg of plummeting car sales, but she’s doing much more than I might have expected from an OEM to try to steer them out of the way.

Startups may not have the cult of Musk behind them, but they’ll be innovating in ways that traditional OEMs may be cautious to do.

Will OEMs survive?

The continued decimation of auto sales is far from GM’s problem alone. Every traditional automaker is going to have to power innovation, cut fat, and shift priorities – or shutter the company. This post-peak car pressure isn’t just coming from evaporating sales, but also the absorption of car volume by new market entries – Tesla, Lucid, Rivian, and the like. Legacy OEMs will have to fight to stay alive.

I know many people believe that when it comes to EVs, the OEMs have the advantage and are going to beat out the upstarts. I agree that they do have an advantage in areas like supply chain, manufacturing, and marketing. But disruption is not a force to be trifled with.

Startups may not have the cult of Musk behind them, but they’ll be innovating in ways that traditional OEMs may be cautious to do (like autonomous or OTA). Startups will work hard to ensure a great all-around customer experience. They won’t be burdened by legacies like difficult dealership relationships or union contracts. And the things that the OEMs are great at – like manufacturing, logistics, and marketing – can all be bought. OnStar’s opening up is a subtle message to all automakers. It doesn’t pay to be asleep at the wheel. In other words, get busy living or get busy dying.