GM is quietly becoming a subscriptions company

• GM said OnStar generated about $800 million in revenue in the second quarter.
• It sells two software systems: autonomous driving with Super Cruise and safety features with OnStar.
• GM told Business Insider it plans to add features through updates over time, reducing the need for new car parts.

General Motors has been pulling a Tim Cook and boosting its software and subscription business.

During the automaker’s Tuesday earnings call, executives highlighted the rapid growth of OnStar and Super Cruise, its two most popular software services.

Subscriptions are increasingly important to automakers. Unlike a car sale, which happens only every few years, they can keep bringing in high-margin revenue long after a customer drives off the lot.

GM says its software business keeps roughly 70 cents of every dollar it brings in. That’s a rare level of profitability in the auto industry, as many car sales generate just four to 10 cents per sales dollar.

The automaker’s OnStar business — which offers GPS and cellular safety services — brought in about $800 million during the second quarter, up more than 20% from a year earlier. GM expects to add about 1 million OnStar subscribers this year, bringing the total close to 13 million.

Super Cruise, GM’s hands-free, eyes-on driving system, is growing even faster. GM added about 70,000 subscribers during the quarter and expects to end the year with more than 850,000. Revenue from the service increased about 70% from a year earlier.

And a lot of drivers are sticking around after the free period ends. GM said between 30% and 40% of eligible owners continue paying after their included three-year Super Cruise subscription expires.

The company also said Super Cruise will be standard on high-end trims of its newly redesigned Chevy Silverado and GMC Sierra full-size pickups, which the company said should bring in around 160,000 users.

“We do think we have tremendous levers, multiple levers of growth,” Barra said on the call. “We definitely think there’s a lot of opportunity at GM to grow, improve margins, and become less cyclical.”

“Software and services are becoming increasingly important to how customers experience GM vehicles and how we deliver value beyond the initial purchase,” a spokesperson previously told Business Insider. “As vehicles become more software-defined, we can introduce new digital experiences through updates and optional services rather than hardware changes.”

The subscriptions push comes as automakers look for new ways to make money after cars leave the dealership lot — especially as Detroit automakers roll out new electric vehicles.

EVs typically need less maintenance than gas-powered cars, cutting into the repair and service work that has long been a reliable profit engine for dealerships and manufacturers alike.

GM has structured its subscriptions to ease customers in. OnStar Basics is included with 2025 and newer GM vehicles at no extra cost, bundling safety features, navigation, and audio apps for up to eight years.

Paid subscriptions come later. GM charges $19.99 a month for Connect Plus, which provides in-car internet access, and $39.99 a month for Super Cruise, its hands-free, eyes-on system. Driver assistance is free for the first three years.

GM isn’t the only automaker leaning into its subscriptions business.

In February, Tesla discontinued the $8,000 option to buy its self-driving software, called Full Self-Driving (Supervised). After February 14, owners must pay $99 a month for the service — a price point Elon Musk said will increase as the technology gets better.

Ford’s highway-assist feature — called BlueCruise — costs $49.99 a month, $495 for a year, or $2,495 for the car’s lifetime.

Mercedes-Benz and BMW also offer self-driving upgrades on some of their new vehicles.

But for GM, America’s best-selling car company, profits from the new subscriptions could be a boon. Wall Street was pleased with the automaker’s earnings report, sending the company’s stock up 8.8% in the hours after the earnings call.

“This is playing out as a software story GM first told us about in 2021,” David Whiston, an analyst at Morningstar, previously told Business Insider. “If they can do other software as a fee, plus data to local governments on traffic and accident risk, there’s real potential for revenue streams at margins impossible to reach via just selling a car.”

Read the original article on Business Insider