Ken’s Take: I’ve posted a couple of times that I think GM made a huge mistake by failing to capitalize on the early brand success of Saturn … and that Government Motors blundered by ditching the brand instead of using it as the umbrella brand for eco-cars.
It will be interesting to see how well Penske is able to leverage the Saturn brand.
My bet: Saturn will flourish, GM’s stable of passe brands will continue to fade.
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Excerpted from Business Week, “Penske to Buy Saturn from GM”, June 5, 2009
Roger Penske , a legendary figure in auto racing, is about to take on a decidedly less racy piece of Detroit. Penske will buy GM’s Saturn brand of passenger cars and SUVs .… The racing legend and car-dealership magnate – who owns 310 retail automotive franchises and 25 collision repair centers — will have other automakers build the vehicles while he handles sales, service, and marketing … the brand that 25 years ago was supposed to transform GM.
GM Chairman Roger Smith first unveiled the Saturn idea in November 1983, describing it as a revolutionary new way to build and sell small cars in America. But the project was slow to develop and the brand did not officially launch until 1990. It featured the well-known tagline: “A different kind of car company.”
GM hoped Saturn would lure younger buyers away from imports with smaller, hipper cars. The new factory in Spring Hill had more flexible work rules than traditional GM plants. But despite the cult-like following that grew up around Saturn, the brand never made money for GM. The factory stopped making Saturns in 2007 .
“This is still a good business and we are going to make it better,” Penske says.
Penske’s auto businesses run the gamut from exclusive distribution of the tiny Smart cars in the U.S. for Daimler-Benz to worldwide car and truck dealerships representing 40 different brands.
Despite boasting one of the most honored sedans on the road today, the Aura, and the highly acclaimed Outlook SUV, Saturn’s overall sales have been falling.
The unit has been a thorn in GM’s side for years. It started out with a bang, created from scratch in the 1980s to compete with Japanese small cars and inject entrepreneurial spirit into a lethargic company. Its cars were sold in upgraded dealerships that fostered a sense of community; thousands of customers would flock each year for a reunion at the Saturn factory in Spring Hill, Tenn.
But GM starved the brand of competitive new products throughout the 1990s. By the time management tried to reinvigorate Saturn with new car designs after 2000, the brand’s image had taken a huge hit.
“When Saturn launched in the 1980s, it was the new, new thing, with the best dealer service and no-haggle pricing that put customers at ease, But in recent years, it has just been another GM division, operating the same as Chevy or Pontiac, with nothing to differentiate it and a marketing message that keeps changing, so that people haven’t been able to get a handle on what the brand is supposed to be.”
Saturn sales are down almost 60% this year, worse than most other brands. Consumer demand has waned, especially since GM made it clear earlier this year that it would sell the brand. At the current pace, fewer than 100,000 Saturns will sell this year. The brand, said Penske, should be able to rebound toward the 200,000 level it enjoyed, on average, during the last five years.
Penske thinks he can change that. “We will be able to bring totally fresh and unique product to Saturn, and we can leverage what is still an excellent dealer network and the fact that we have no legacy costs to worry about”.
As romantic as owning a car company sounds, Penske rattled off more rational reasons for buying the business from GM. He pointed to the fact that some 3.5 million Saturn customers have vehicles on the road today, meaning that he can count on steady demand for parts. Also, Saturn’s more than 300 dealers have modern, up-to-date facilities and sell only Saturn vehicles. “It is incredibly valuable to have an established business like this without all the legacy costs GM had to worry about covering.”
First off, he won’t own any manufacturing plants. All production will be outsourced. Saturn will continue to buy today’s vehicles from GM for at least two years. Penske will talk to other auto manufacturers in Europe and Asia about supplying new products after that. Auto companies have far more manufacturing capacity than they need, so all would be eager to add Saturn’s current sales volume to their factories. “Our success has been with handling the business that is closest to the customer, so I don’t want us to get into our own manufacturing business.”
As Penske looks to replace models … he will solicit designs from that company—or perhaps from a contracted design studio—for a plan that differentiates the vehicle from any the manufacturer is selling under its own name.
The Homa Files 