Think how nice it would be for General Motors’ executives if they could just push a button and electronically beam their industrial woolly mammoth into the Digital Age.

That’s exactly what they’re trying to do. It’s just that they’re using three buttons, embedded in the ceilings, rear-view mirrors, or instrument panels of more than one million new GM vehicles in the U.S. The colored buttons are the face of OnStar, an onboard-communications service that GM is pushing at customers in a bid to become much more than the world’s largest vehicle maker.

It’s hard to overstate how much The General has riding on OnStar. GM’s share of the auto market has declined over the past several decades, and there is no relief in sight. Meanwhile, as e-commerce analysts salivate about the prospects of "mobile commerce," GM has tens of millions of customers spending billions of hours a year in its cars. Talk about a captive audience. Securities analysts say that subscribers to "telematics" services such as OnStar may carry stock-market valuations as high as cable-television subscribers, currently valued at around $4,000 each. Multiply that by the millions of subscribers that GM expects, and you get a big number.

OnStar "can be just like America Online," says Ralph Szygenda, GM’s chief information officer.

Perhaps. But it won’t be easy. Though GM did get an early start on telematics, it doesn’t have the greatest record for bringing technological innovations to market. [See related article, "GM's 'Invented Here' History." OnStar faces plenty of competition, not just from other car makers, but from any company that makes mobile phones or PDAs.

GM’s ambition is nothing less than to put the Internet on wheels. Moving beyond OnStar’s current, basic services [See related article, "How OnStar Works"], GM says OnStar users will soon be able to use voice commands to reach the Internet and request in-car traffic updates, news headlines, weather reports, sports scores, stock quotes, and e-mail.

Later, GM says, OnStar could let car owners download MP3 music files into their CD players or receive DirecTV—a satellite TV service offered by GM’s Hughes Electronics unit—in the back seat. OnStar will also provide constant, remote monitoring of important onboard metrics such as oil pressure, tire inflation, and brake-pad wear, letting drivers know when to take action. Chet Huber, OnStar’s general manager, says focus groups "have imagined a sort of remote triage system that would say, ‘Don’t worry,’ or, ‘It’s serious,’ or, ‘Stop right now.’ That could do a great national service."

But the ability to connect directly to the Internet and to use services such as e-mail requires voice-recognition technology, and it’s not clear how well that will work. In one test, GM’s MagicTalk voice-recognition system could handle only basic commands, such as dialing a telephone; it wasn’t up to requesting information from the Internet or sending e-mail. As with most other speech-recognition software, users had to employ only a limited vocabulary, speak uncommonly loudly, and enunciate extremely carefully. While MagicTalk may be as robust as any system out there, voice-recognition is notoriously tricky, and a car is a noisy, difficult environment.

In addition, GM’s system of operators and databases isn’t yet adequate to the task. Each operator is a college graduate who receives six weeks of training, but OnStar executives concede they too often provide slow or even inaccurate responses. During a test drive in and around Detroit, for instance, the operator gave needlessly complex directions to the Detroit Opera House, and a request for Chinese restaurants in a Detroit suburb failed to turn up the largest and best-known one in town.

OnStar executives also acknowledge having to learn that, for example, "People don’t want the ‘closest thing,’" says Mark Hogan, president of e-GM, the collection of GM’s online business-to-consumer enterprises. Instead, he says, "They want a brand." In other words, people don’t ask for the nearest restaurant; they ask for, say, the nearest McDonald’s. So, GM is having to build a much more sophisticated database and add waves of better-trained operators.

Still, it remains to be seen whether drivers even want an Internet on wheels. ATX Technologies, the company that provides private-label telematics services to Mercedes-Benz and a handful of other auto makers, says consumers are far less interested in Internet-based services such as entertainment and travel information than they are in car-related services such as roadside assistance and emergency response.

"A high percentage is just not going to be on the Internet constantly," says Mike Ledford, a top executive with the new Ford Motor telematics initiative that rivals OnStar, called Wingcast.

Ford’s approach points up two other potential weaknesses for OnStar. First is the fact that OnStar is run by a computer that will stay embedded in the car even as other computing devices continue to increase in power. Jonathan Lawrence, analyst for Dain Rauscher Wessels, worries that makers of cell phones and other mobile devices, such as PDAs, could well eventually offer much better connections to the Internet or access to other types of information than is possible with the OnStar computers being installed today. Habit would seem to favor cell phones—60% of mobile-phone usage currently takes place in vehicles, according to Strategis Group, a telecommunications-consulting firm.

Dennis Walsh, OnStar’s chief technology officer, responds that "we’re putting as little computer power as possible in the car and making the network deliver the content or make the connection." That way, Walsh says, GM can continue to upgrade an owner’s OnStar service for as long as he owns the car, even if that’s 10 or 12 years.

The second potential problem is that GM’s OnStar is a complete package that doesn’t work outside the car or cooperate with other devices, such as cell phones and PDAs. By contrast, Ford’s new Wingcast system, being developed with Qualcomm, will have users plug a portable phone into a docking station in the car. "We don’t think we need to do this all ourselves or that we should," Ford’s Ledford explains. Customers "don’t want separate bills for AT&T long line, Sprint wireless, OnStar, Leroy’s Telematics, or whatever." Indeed, ATX says more than two-thirds of current subscribers would like to be able to use telematics functions outside the vehicle. Gary Lapidus, an auto-industry analyst at Goldman Sachs, says Ford’s fully mobile platform is "likely the right direction."

Walsh counters that OnStar needed to be part of the car itself so it could achieve clearer voice connections by drawing on the car’s power system, rather than relying on a cell-phone battery. He adds that he thinks voice is obviously the best way to request and receive information in a car. Otherwise, someone might be trying to read a screen or punch buttons while driving—an issue that increasingly troubles regulators and fellow drivers.

Even if Walsh is right on the technology and OnStar can stay ahead of the competition, GM will still have to overcome its historical tendency toward being ham-fisted in the crucial area of customer relations. Although GM seems to be treading lightly to court customers for OnStar, executives talk longingly about the system’s possibilities for keeping customers informed about new models. Just imagine how a driver would react the first time his radio stopped playing so a voice could direct the driver to pull over at the next corner and visit a GM dealer to check out a sale.

In GM’s favor is that it has moved (mostly) with unusual alacrity since the OnStar idea surfaced four years ago. While Ford actually went first but then moved slowly on its telematics initiative, GM Vice Chairman Harry Pearce latched on to OnStar as a way to get the company’s technological resources working together—including the Hughes satellite unit and information-services provider Electronic Data Systems, which GM owned at the time. Jack Smith, then chairman of GM, lent support by giving speeches about lacing the Internet into vehicles. And executives of Motorola—a key instigator and major technology supplier of OnStar—prodded GM to think about ways of stretching OnStar quickly.

Huber, OnStar’s general manager, says that his team broke "every rule in sight in terms of being quick to market," moving OnStar into vehicles in less than a year after proving the technology. This compares with a typical two- to five-year gestation period for a major new feature at GM, which doesn’t enjoy a reputation for being speedy.

GM knew it needed to do something different. Despite GM’s huge revenue of $177 billion in 1999, an employee base the size of a small nation (at 388,000 workers), plants in 50 countries, and dealerships in virtually every nation on earth, GM’s market share fell below 30% last year for the first time in decades. Competition for car sales will only get worse because the worldwide oversupply of new vehicles is growing rapidly. Besides, the car business "is a viciously competitive industry that consumes mountains of money, is cyclically vulnerable, and yet, in a good year, generates only a 5% return on sales. Whoopee!" says Maryann Keller, president of Priceline.com’s car division and formerly an auto-securities analyst.

Despite the mounting pressure, the OnStar system still got caught up in a debate about whether to treat OnStar as a way to sell cars or as a potentially valuable system in its own right. Initially, those who wanted to sell more cars won out. Last year, nearly 60% of Cadillac Escalade SUV buyers said the OnStar equipment was a significant factor in their purchases—23% said it was the deciding factor. But GM’s strategists eventually concluded that OnStar’s technology and market-share lead would dwindle as telematics becomes standard equipment in vehicles around the world, so they decided to try to grab market share for OnStar as aggressively as possible. "GM is a good place to start, but we didn’t want to miss that other 70% of the market," Huber says. GM also wanted to spread the costs of call centers and other infrastructure across as many subscribers as possible.

So, earlier this year, GM agreed to make OnStar available to Toyota and Honda Motor for some U.S. and Japanese models. OnStar also has been trying to penetrate Europe, where wireless-Web acceptance is way ahead of the U.S.

Until this year, GM charged $695 to install the OnStar package at a dealership. But GM has begun factory-installing OnStar as standard equipment on 19 models and offering it as a dealer-installed option on 10 more. OnStar comes with a complimentary one-year subscription to the safety-security package. Within three years, GM intends to make OnStar standard equipment on all five million vehicles that roll off its assembly lines each year.

GM has been aggressively marketing OnStar, without tying the service to GM. This past spring, OnStar placed itself as the latest crime-fighting tool in the Batmobile in some TV ads. In the first episode of MTV’s Real World New Orleans in June, the show’s cast of five Gen-Y-ers used OnStar to find restaurants and get directions. (Later, driving around alone in the GM-provided Yukon XL, cast member Julie became bored and engaged an OnStar representative in a long conversation, and even swapped jokes.)

With the big push on, GM says OnStar had about 300,000 subscribers at the end of July, up from 100,000 at the end of last year. The company estimates OnStar will have four million subscribers by 2002. The optimism presumes, of course, that many of the 70% of car buyers who opt for OnStar will renew after their free trials end.

GM says that renewal rates are good, but declines to disclose what they are. Analysts say OnStar could be delivering annual subscription fees of $1.5 billion a year by 2002. Prudential Securities analyst Michael Bruynesteyn expects the company to sell 10% to 20% of OnStar to the general public by the end of next year.

A big success with OnStar could help the whole product line by burnishing the GM name. "GM needs to jump on OnStar and ride it, because GM desperately needs to return to the image it once enjoyed as being the industry leader in new features," says James Wangers, a senior analyst for Automotive Marketing Consultants.

But GM is not kidding itself about OnStar’s difficulties. "We understand the competition from the other car companies and the telcos and everyone else," says OnStar’s technology honcho, Walsh. "We’re pretty paranoid out here."

You might call the threats his hot buttons.

Dale Buss is a veteran financial journalist in Rochester Hills, Mich. He can be reached at DaleDBuss@aol.com.

HOW ONSTAR WORKS

OnStar's three buttons control a small onboard computer that lets a car communicate with a GM center via cellular phone. The computer also uses Global Positioning System satellites to pinpoint where the car is, letting OnStar tailor its response based on location.

The basic service covers safety and security. If an air bag deploys, the car automatically notifies an OnStar operator, who immediately contacts 911 operators with the car's location. This has happened a few thousand times so far. (One user, dazed after a crash, later said he was at first baffled by a disembodied voice asking him, over and over, "Are you all right?") OnStar also can track a stolen vehicle. In addition, drivers who lock themselves out of their cars can call a toll-free number, provide a password, and have an OnStar operator unlock the doors. The basic service costs $200 a year.

The OnStar premium "concierge" service lets users speak to operators through a microphone hidden in the dashboard and hear a response through the stereo speakers. Drivers use the service to call for directions when, say, they are lost or want to find the nearest Italian restaurant or ATM. The premium service costs an additional $200 annually.

GM’S ‘INVENTED HERE’ HISTORY

Based solely on General Motors’ track record for the past couple of decades, it’s easy to discount OnStar’s chances of success. That’s because GM has made one promising, multibillion-dollar leap after another into the Great Technology Beyond—only to have these moonshot-like efforts come up short.

Former Chairman Roger B. Smith initiated many of the missteps during his tenure, 1981 to 1990. First he spent hundreds of millions of dollars on sleek new assembly plants, stuffing them with robots and other pieces of state-of-the-art automation. But it was too much too soon (some of the robots started painting each other), and soon the company switched back to a greater dependence on human assemblers.

In 1983, Smith launched the multibillion-dollar Saturn project, which was supposed to revolutionize the auto maker’s product technology and change how it dealt with unions and dealers. Saturn has been a remarkable success with customers and employees but has done nothing for GM’s technology.

Smith bought Electronic Data Systems to bring GM’s information-technology systems into the ’90s. Instead, Smith wound up in a feud with EDS founder H. Ross Perot, and GM spun off EDS again a couple of years ago. GM was left with a huge void in its IT expertise.

The granddaddy of Smith’s acquisitions, Hughes Electronics, has produced a very popular satellite-TV system, called DirecTV, but has done little in the way of improving GM vehicles.

"None of this stuff worked the way it was supposed to," says Maryann Keller, a former securities analyst who followed the auto industry and is now president of Priceline’s automotive division.