GM counting on high-speed Internet services in car to drive profits

Fri Apr 17, 2015 2:29pm EDT
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By Ben Klayman

DETROIT (Reuters) - Buyers of General Motors Co vehicles will increasingly be able to use in-car mobile broadband systems to book hotel rooms, cut deals on driver insurance, pay for data usage and conduct a host of other transactions.

And each time they do, GM will get a small cut from the seller.

When the automaker began offering 4G LTE high-speed wireless connections in some cars last year, it wasn’t clear how it would generate revenue to offset the costs of the hardware. Now, as the company prepares to expand the technology to most of its 2016 U.S. models, GM is lifting the curtain on its digital business strategy.

   During a recent investor presentation, company executives put a number on their 4G expectations for the first time, saying they expect to reap at least $350 million in improved profits over the next three years from adding the OnStar 4G systems to its cars.

    GM is the first automaker to reveal its projections, but it is not alone in chasing digital profits. Its wireless partner AT&T works with seven other carmakers, including BMW, Nissan Motor and Audi, which was first to offer 4G connections in a car in late 2013. As in-car broadband usage grows, GM's estimates could turn out to be conservative, some analysts say, since the potential for revenues from in-car broadband connections are still being developed.

Taking a cut of e-commerce transactions conducted on in-car systems is one obvious revenue generator, but automakers also expect that software upgrades pushed through a broadband connection will one day save them hundreds of dollars per car in repair costs. And they are looking at developing other features as well, such as automatic order placement when a car approaches its driver's favorite coffee shop or fast-food outlet.

IHS analyst Mark Boyadjis estimates GM could add about $439 million in profits from 4G over the next three years. And that figure doesn't include lower warranty costs related to services driven by high-speed connections, a number that by itself could dwarf that estimate, he said.

    By the end of 2020, Gartner analyst Thilo Koslowski expects as much as 80 percent of all new vehicles will be sold with connectivity and automakers will make a tenth of their revenue from these services.   Continued...

The General Motors logo is seen outside its headquarters at the Renaissance Center in Detroit, Michigan in this file photograph taken August 25, 2009. REUTERS/Jeff Kowalsky/Files