OnStar & In-Vehicle Telematics | In Practise

OnStar & In-Vehicle Telematics

Former Director of Corporate Strategy at General Motors

Learning outcomes

  • History of OnStar and how factory installation fuelled growth
  • Foundations of OnStar’s core safety and security offering
  • Analysis of who will own and monetize vehicle data
  • Is vehicle telematics commoditized in the long run?
  • Comparing LoJack and OnStar technology and challenges for 3P telematics providers
  • How Apple CarPlay and Google are disrupting the auto ecosystem
  • Opportunities for OnStar Insurance and the future of UBI
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Executive Bio

Nick Pudar

Former Director of Corporate Strategy at General Motors

Nick spent 38 years at General Motors and was one of a handful of employees who led Onstar, GM’s leading telematics unit, in the early 2000’s. Nick joined GM straight out of MIT where he rotated between engineering and manufacturing roles before joining the Strategy organisation within GM. In 2005, he joined Onstar and was involved in scaling the aftermarket business before rolling out factory installation of Onstar for every GM vehicle. Nick was pivotal in scaling Onstar and explored various ways to monetise vehicle data from insurance, repair and diagnostics, and infotainment. Nick is the former Director of Corporate Strategy for GM where he was responsible for addressing new growth areas across connectivity, telematics, and mobility. Nick is now a professor at MIT Sloan School of Management. Read more

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Nick, can you share an introduction to your background at GM?

I have been at General Motors my entire career, coming right out of engineering school and started off in engineering and manufacturing. I had the good fortune of being able to attend MIT to do my graduate work in management and when I came back to GM, I wanted to focus on strategy, so I ended up in the strategy organization and we had an internal consulting group at the time. We worked on a variety of projects, across the corporation, looking at operational improvements and new business opportunities. One of the very first projects I got a chance to be involved in was the OnStar business while it was still an idea. Over the course of time, I worked on various aspects of different activities in the corporation from a strategy standpoint and, at one point, got asked to join OnStar where I was the Vice President of business development and new services. After that I helped start up Maven – GM's car sharing business – for a few years.

I then moved back into the strategy role and was very involved in the autonomous vehicle activities, working with Cruise. A couple of years ago I retired and I now teach at MIT in the Sloan School for the Executive Education program.

What was the rationale for GM starting the OnStar business?

GM had been interested in exploring what could be done with vehicle connectivity for many years. It started in the 1960s and, for a variety of reasons, the technology was not ready for the scaling which was required; the infrastructure was far too expensive. At one point, we contemplated building a series of private network microwave towers across the continent. It was billions of dollars and was not part of the core business. There was always an interest and a belief that we could leverage connectivity to enhance the safety, security, functionality and new services for customers and the right combination of technologies converged in the mid-90s which was when the corporation took a much harder look at it. At the same time, GM owned two other corporations.

One was Electronic Data Systems, EDS which is an IT organization, and the other was Hughes Electronics. I suspect there was some pressure from Wall Street back then asking why they were involved in non-automotive activities. The CEO and senior leadership team were more ready to look at what some of these synergies might be and that was where the team, which had been looking at the connectivity possibilities, really pulled together the right focused effort to study it. The answer was yes; it could be valuable, profitable and important to our customers.

###What was the core business of OnStar in those early days?

The core business was, and still is, focused on peace of mind services and the safety and security and how the connectivity and capabilities of those platforms enhance our digital lifestyles. Although I am using more current lingo but the central theme was always safety, security and peace of mind. We initially went to market with an aftermarket product and OnStar was available on a single Cadillac vehicle – the DeVille – and I think it was a 1995 or 1996 model. It was installed at the dealership and was a Hughes telephone with the old cord built-in. We had subscribed to an extra cellular service, on top of OnStar, and the installation cost was $1,200.

The car was at the dealer for several days while they ripped it apart to install all the new electronics. It was very expensive and, as we expected, was going to be a hard sell at that level. We always believed a factory installation business model was appropriate but the corporation was not ready for that commitment in those early days. The OnStar aftermarket business plateaued at 70,000 customers, after which my team and I took a hard strategic look to how we could move the business to a factory installation model and grow it further.

Competing in the aftermarket was clearly difficult as the customer not only had to pay for it but also had to bring their old car to the dealership and not use it for several days. It seems a high hurdle rate to get over to deploy the device?

Yes, it was difficult from both a friction and customer standpoint and building the awareness was an important component. We were small, had few customers and advertising was expensive. We were highly dependent on the dealers to talk about it during the point of sale. While it was difficult, it was also a huge advantage that other aftermarket providers did not have. Dealers are very profit minded and wanted a big commission to help sell those products. This was not core to General Motors, who viewed it as another option on a vehicle, no different from anti-lock brakes.

They did not see it as a service business, even though we had not yet built the full service business capabilities. From an economic standpoint, these challenges constrained what could be done to push and grow the business faster.

What made GM decide to install it in the factory?

Once the business plateaued at 70,000 subscribers, there was pressure to shut it down because it was a distraction. With some installations, there was discussion around quality concerns later on, due to the aftermarket installation process causing components to start rattling. Several of us went back and approached it from a systemic perspective and an idealized design standpoint, using Russell Ackoff's structures and thought processes. We wanted OnStar on every vehicle out there; all GM vehicles as well as other car companies. We wanted it to become such a phenomenal brand that other car companies would install it.

Similar to the Intel Inside mantra, we wanted it available on aftermarket devices. We wanted it available on PDAs because, back then, cell phones were a novelty. One of the early slides we put together had a picture of a futuristic StarTAC Motorola phone and we wanted OnStar to be part of this in future. We did some math and, at the time, GM in North America built four million vehicles annually. If every customer had OnStar, the annual revenue and economies of scale would result in a very profitable business and could significantly grow the value of the corporation.

There was enough interest and intrigue in this concept that the CEO and his staff asked us to do a more rigorous assessment and figure out what it would take. One of our idealized design components was that we wanted this in vehicles as quickly as possible, ideally starting in the next model year. For anybody who knows how the OEM business works, nothing happens in the next model year, especially when a lot of engineering and inspiration is involved; it takes multiple years to get anything into a car.

How quickly did they deploy that?

In the early days, when we first started talking about this, I was being told by many vehicle line executives, good luck convincing the first vehicle line to actually try this. Given the amount of engineering and re-architecting of these vehicles, it would take at least five years before this technology could be factory installed and nobody would take on that burden or cost. We kept saying that, for the corporation to get the full benefit, we need to have it across all vehicles next year. I was summarily thrown out of rooms and people thought I had lost my mind. At the time, the big SUV Cadillac Escalade was coming out and they wanted to do something unique.

They were looking to do something from a marketing standpoint, so they wanted to include OnStar as a standard feature in the vehicle. It was an aftermarket standard feature; a kit which would get delivered to the dealers who would install it when the customer took possession. The factory did some pre-wiring in the wiring harness to make the installation process easier. Some of our guys went to the factory and asked the people on the line what it would take to install it there. They said it was too much work, too difficult and that another half a head was required to do it so it was not affordable. I offered two extra people to do the work as it was important to the corporation. They thought about it and, several weeks later, agreed to do it.

Before that year was over, the Cadillac Escalade was being factory installed because we recognized the benefits for that program. We learned through that very aggressive interrogation process that, if there was a serious engineering effort over the following six months to evaluate what would have to change in the vehicle development process, we could accelerate this. The short answer to what happened was the engineers said they could not factory install across the entire portfolio the following year, but could do half of it. The CEO told them to do the second half the year after that. What ended up happening was that, in the first year, OnStar was available as a standard factory installed feature on several different trim levels of vehicles.

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OnStar & In-Vehicle Telematics

December 10, 2020

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