GM expands software subscriptions to drive profitability as OnStar and Super Cruise grow

General Motors is positioning its connected-car software and subscription businesses to expand high-margin revenue streams, alongside ongoing cost reductions and share count reductions that have supported earnings-per-share growth. The company’s stock has doubled over the past three years, and GM says additional high-margin opportunities are developing through services tied to OnStar and Super Cruise.

Flipping industry margins

The broader auto industry is typically capital-intensive with thin margins, but GM is aiming to shift part of its economics toward software-like profitability. GM’s connected services are central to that strategy.

This year, GM expects to generate $3.1 billion in realized revenue and $7.5 billion in deferred revenue from OnStar and Super Cruise subscriptions. That compares with 2020, when the two subscriptions produced $1.7 billion in realized revenue and $200 million in deferred revenue.

GM links the growth opportunity to the increasing presence of infotainment technology, sensors, and onboard computing used to analyze driving conditions and support autonomous-driving-related features.

A brave new auto world

GM CFO Paul Jacobson told investors at Bank of America’s Global Automotive Summit earlier this month that the connected business can deliver software-like margins that may, over time, surpass even GM’s wholesale business.

One challenge GM must manage is subscription fatigue as consumers face growing numbers of paid services across categories such as food delivery and streaming. GM’s response is to take a longer-term approach with vehicle purchases starting with the 2025 model year.

Beginning with the 2025 model year, GM plans to include an eight-year basic subscription to OnStar and three years with Super Cruise. Rather than relying on short free trials, GM is betting that customers will become accustomed to the services and renew them, and that some will choose them directly at the next purchase.

Data points on adoption and renewals

GM reports early indicators of customer uptake and retention:

• Roughly one-third of customers with basic OnStar subscriptions upgrade for additional features.
• At least 30% of expiring Super Cruise subscriptions renew in 2025.

The long road ahead

GM’s connected software and subscription services are intended to reshape its long-term margin profile. Over the past decade, GM averaged just over 16% gross margin, while software services are described as typically offering margins closer to 70%.

GM’s strategy is to embed long-term subscriptions across new models, with the expectation that it will take time for millions of newer vehicles and subscriptions to reach maturity. The article argues that, a decade from now, GM’s gross margin could look substantially more attractive if these subscription economics scale as planned.