DETROIT -- General Motors' OnStar tele-matics unit has quietly become a profit margin superstar.
Analysts peg OnStar's revenues at about $1.5 billion annually, with a margin of 30 to 35 percent. That's about five times the 6.2 percent margin from GM's first-quarter adjusted earnings before interest and taxes in North America -- where the vast majority of OnStar's business is today.
The question for GM now is: Can OnStar be more?
CEO Dan Akerson and other top executives are itching to shake up OnStar's cozy safety-and-security oriented, monthly subscription model. They see GM's deal with AT&T to provide 4G LTE connectivity -- the fastest type of wireless Internet connection now available -- through OnStar next year as the enabler. Akerson told stock analysts this month that the 4G deal "opened up what I think are potentially lucrative lines of business that don't exist" in OnStar today.
"So when we look at what we can do with a 4G pipe into a car," Akerson said, "you can change the business model almost entirely."
GM foresees expanded offerings such as custom apps, streaming entertainment and enhanced diagnostic links to dealers. To create the new OnStar, GM appears willing to reboot a business that churns out steady profits but has limited growth potential.
OnStar COO Terry Inch says basic services such as crash notification, security and navigation will remain OnStar's core. But, he says, 4G will enable GM to surpass other automakers.
"I'll tell you," Inch says, "that will be a platform that we really leapfrog from."