By Doron Levin, contributor
FORTUNE — General Motors Co. decision to back down from a change in the terms covering OnStar customers shows that the automotive giant — no less than Facebook — has readily learned the lessons of other firms’ mistakes when it comes to the touchiness of consumers when it comes to privacy concerns in cyberspace.
GM (GM) inadvertently stirred a hornets’ nest by amending a user agreement that would allow its OnStar telecommunications link, used in about six million vehicles, to gather data about those vehicles even after customers’ subscriptions expire. GM made the change in part to make it easier to renew contact with car owners who had allowed their subscriptions to lapse or had sold their vehicles.
The change was generally overlooked by consumers, who rarely read the fine print on such agreements. But at least one miffed OnStar subscriber did notice and blogged about his decision to end the service:
I canceled the OnStar subscription on my new GMC vehicle today after receiving an email from the company about their new terms and conditions. While most people, I imagine, would hit the delete button when receiving something as exciting as new terms and conditions, being the nerd sort, I decided to have a personal drooling session and read it instead. I’m glad I did.
The ensuing uproar among nerds and non-nerds alike provoked criticism from privacy advocates and at least three U.S. senators, one of whom sought a federal investigation. Though GM backed down on the amendment, the controversy is sure to add new fuel to the debate about the ownership and legitimate use of data generated in cyberspace. Facebook, for example, tinkers continuously with privacy controls on its social media platform in response to users who want personal information protected from unauthorized use. It has had to apologize for moves it made in the past.
Under OnStar’s original terms and conditions of usage, the satellite-based service installed on GM cars and trucks owns the data about the speed and location of vehicles operated by customers, as well as technical information such as when the oil has been changed. GM also reserves the right to sell the data to third parties — though it said it so far hasn’t done so. Once a customer’s subscription to OnStar expires, GM no longer collects data.
Vijay Iyer, an OnStar spokesman, said “anonymized” data could be sold, for example, to various federal agencies that wished to understand traffic patterns or vehicle use. “Under no circumstance would we sell or share information about individual customers,” he said.
Some bloggers and others commenting on blogs about OnStar express skepticism that data can be truly “anonymized,” that locations — for example — can’t be elicited from information and someday used in legal proceedings.
Many of today’s vehicles carry “black boxes” that record information about a vehicle’s operation, such as its velocity, which can be used to analyze accidents and are subject to subpoena. Vehicles that have navigation devices powered by global positioning satellite are constantly tracked, and the records of trips may be stored digitally.
But none of the controversy is limited to vehicles. Smartphone owners may be tracked, with their permission, by location-based services like Groupon that tell of nearby sales or promotions. Cookies inserted in computer programs record a user’s movement on the Internet. Earlier this month Google (GOOG), at the request of privacy advocates, gave smartphone users in Europe the choice of opting out of such services.
According to OnStar’s proposed agreement the data link between OnStar and a customer would continue even after a subscription expires — and GM would own and can sell any data generated unless the owner of the vehicle specifically declines the data connection. OnStar charges between $200 and $300 annually, depending on the level of service; as such, it represents more than $1 billion of revenue annually to GM and produces a high margin of profit.
Sen. Charles Schumer, Democrat from New York, called OnStar’s change in terms and conditions a “brazen” invasion of privacy and asked the Federal Trade Commission to investigate the matter. The U.S. Treasury currently owns about one-third of GM’s outstanding common stock, about 26 percent of the stock on a fully diluted basis.
Perhaps the GM that existed prior to its pre-2009 bankruptcy would have attempted to hang tough with the change in OnStar’s terms and conditions, reasoning that consumer unrest would die down eventually. The new GM is fighting to survive against much stiffer competition, in a world where consumers have numerous choices, including not subscribing to OnStar at all.