COLUMN: GM’s OnStar add-on is like Netflix, but with no way out of it

This article was originally published here: https://www.autonews.com/commentary/gms-onstar-subscription-fee-netflix-no-way-out-it.

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Buying a new car keeps getting more expensive by the day.

But apparently not fast enough for General Motors, which hatched a scheme to squeeze another $1,000 in pure profit out of every single Buick, GMC and Cadillac Escalade buyer.

GM has spent 26 years pitching its customers on the merits of OnStar. It encouraged them to check out the service with free trials. It frightened them into subscribing with commercials showing OnStar operators sending paramedics to rescue people after crashes.

Its latest strategy seems to be ripped from the dystopian customer-service manual of the cable TV industry: Force everyone to pay for OnStar, whether they want it or not.

Last year, GM executives started touting the billions of dollars the company expects to generate from subscription services, telling investors they would get customers to fork over monthly fees the same way they happily pay Netflix and Peloton. They cited OnStar specifically, noting that 70 percent of the money it pulls in is profit. That would mean the $1,500 line item GM began adding to sticker prices in June for a compulsory three-year subscription pads that vehicle’s margin by about $1,050.

GM isn’t the only automaker experimenting with new tactics for shaking down customers. BMW, for instance, has started tinkering with a monthly subscription to activate heated seats on vehicles purchased without them.

A butt-warming fee may be tacky, but it’s less objectionable than a $1,500 upcharge on every vehicle. One is still a choice. The other is an admission that it’s not providing enough value to give customers the freedom to say no.

The timing of GM’s cash grab feels particularly off-putting and short-sighted as the average transaction price for new vehicles closes in on $50,000. For more than a year, the microchip shortage has turned many dealerships into vast seas of empty asphalt resembling Walley World when the Griswolds arrived.

So customers who finally locate a vehicle that fits their needs — but more importantly right now, exists! — might decide to hold their nose and pay GM’s OnStar ransom. What about next time, though? A new study suggests that the markups people are getting cornered into paying these days may do lasting damage to dealership and brand loyalty — particularly among younger buyers whom automakers want to convert into loyal customers for decades to come. (And a factory-sanctioned “market adjustment” is what this amounts to, even as GM threatens to punish dealerships that push sticker prices higher on their own.)

I first noticed the ubiquitous $1,500 OnStar fee while browsing Buick Enclave inventory around me recently, as the end of my previous lease approached. Just below that non-optional “option,” each window sticker also listed a $50 discount to make up for GM being unable to get the microchips needed for parking-assist sensors.

That’s two glaring insults on one piece of paper: a four-figure upcharge for an amenity I don’t want but minimal compensation for a desirable feature that’s missing.

I wouldn’t have even looked at Buick a dozen years ago, when it survived GM’s post-bankruptcy brand purge mostly because of strong appeal in China. Since then, GM has steadily improved Buick’s lineup and largely shed its stodgy image. In 2020, I persuaded my parents to lease the new Encore GX, and they often tell me how much they like it. Last year, Buick was the only one of GM’s four brands to achieve a U.S. sales increase amid the chip shortage.

Why risk squandering such impressive progress just to bump revenue up a bit at an already lucrative time to be selling cars?

GM’s official explanation is that integrating OnStar in the vehicle purchase provides “a more seamless onboarding experience and more customer value,” but the amount of spin in that line makes me dizzy. It did make car shopping simpler for me, however, because crossing Buick off my consideration list suddenly became an easy decision.

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