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Chrysler Telematics Rollout in Limbo

Hughes Telematics says its contract with Chrysler was terminated last month after the auto maker “introduced additional business terms” that were not part of the original deal.

Chrysler Group LLC’s bankruptcy this summer has derailed the auto maker’s contract with a supplier that was planning to equip a wide range of Chrysler, Dodge and Jeep vehicles with state-of-the-art telematics service, beginning this fall.

Hughes Telematics Inc. says in a Securities and Exchange Commission filing this week its long-term, exclusive contract with Chrysler was terminated last month after the auto maker emerged from Chapter 11. As of June 30, Hughes says it incurred $8.5 million in costs associated with the contract.

The supplier had been negotiating a new telematics-service agreement with Chrysler post-bankruptcy.

The auto maker “introduced additional business terms that were not part of either the prior business discussions or the original arrangement,” which led to an impasse in the negotiations, Hughes says.

“As a result, the company discontinued working with New Chrysler to deploy (Hughes’) hardware and launch the company’s services in the fourth quarter of 2009 as previously planned,” the SEC filing says.

The first vehicle slated to feature the system was the ’10 Dodge Journey. An aggressive rollout across Chrysler Group’s vehicle lineup was to follow. An informed source tells Ward’s the auto maker planned to integrate the system in all its vehicles by 2012, with the possible exception of a Jeep product.

Chrysler declined to answer questions about the Hughes contract.

Just weeks ago, the partners appeared on track to proceed with their plans.

“We’re working together, developing the rollout schedule as if it’s unchanged,” Hughes Vice President Kevin Link told Ward’s at a telematics conference in June. Hughes also demonstrated the Chrysler telematics system on a prototype vehicle at the conference.

Meanwhile, Hughes is preparing to introduce its technology in Mercedes-Benz vehicles through a contract with Mercedes-Benz U.S.A. Inc. Hughes’ contract, which takes effect in November, displaces the auto maker’s previous telematics provider, ATX Group Inc.

“We will take over all new customers, and we have a marketing program to take over, to begin to migrate existing customers over to the new brand,” Link said.

The dustup seemingly would open a door for ATX to step in as Chrysler’s telematics provider, assuming the auto maker intends to offer the services at some point.

But an ATX spokesman tells Ward’s his company, based in Irving, TX, has no pending agreement to launch a program with Chrysler.

In the SEC filing, Hughes Telematics says it does not expect sagging automotive sales to have a significant negative impact on its business long-term.

The Mercedes agreement, for instance, requires Hughes Telematics offerings on nearly every Mercedes vehicle produced for sale in the U.S. by 2011.

“We believe that if such current trends are consistent with the cyclical historical nature of the automotive industry, then the trends may be expected to abate and reverse over the next several years,” the SEC filing says.

Hughes management also says it believes an increase in the range of third-party in-vehicle content offerings will have a positive impact on the adoption rate of automotive telematics. Hughes says it is working with companies in the financial services, insurance, safety, real estate, wireless communications, satellite broadcasting and navigation sectors to make such content available.

At the New York auto show in 2008, Hughes Telematics CEO Jeffrey Leddy told Ward’s his company would provide telematics units for “tens of millions of vehicles in the next several years,” driven by expected high volumes with Chrysler.

He also said Hughes’ first call center in Atlanta would begin operation in December 2009. No word on whether that center still is being installed for the Mercedes business.

Leddy said he was optimistic Hughes Telematics one day would be bigger than its principal rival OnStar, the telematics giant created by the former General Motors Corp.

with Eric Mayne

[email protected]

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