On the Demise of Saturn

I recently read an industry analysis written by Mark Scheiner on the demise of Saturn, now a brand in a huge state of flux within GM. In short he stated that it was a GM opportunity gone wrong. He stated, “The lesson here is that brands whether, they’re products or branding, need time to seed themselves. These are long-term investments in both capital and marketing with branding efforts surrounding them. Most importantly, the messaging needs to remain consistent across all channels, and audiences. Too many times companies become impatient or want to change something too quickly.”

While I can appreciate his emotions, I ultimately disagree with his analysis of Saturn's demise. It isn't as simple as staying the course, especially when you must sell your product through an independent dealer base.

In my opinion, GM indeed stayed the course. Since their inception in 1985 they never have turned a profit. They indeed had the logo, the freshness, and during the late 90s the public stated their dealers did it right as they were awarded the highest sales satisfaction ranking by J.D. Powers for four years running.

I consider 10 years to be long term. If you can't turn a profit, there is a problem that must be changed. Saturn had many problems. First, their dealers were challenged with profitability - even though the public loves them. With only three models, a returning customer had to re-up for the same vehicle. Saturn was popular with the 18 - 34 year olds. The problem is, that crowd gets married and starts a family and suddenly their transportation needs change. Saturn did not have a product to satisfy that need. It took 9 years to launch a mid-size vehicle. Customer went elsewhere and dealers never got on the right side of the ledger.

Additionally, dealers depend upon fixed operations (parts and service) to cover their overhead. With a new car line and no fixed ops base it is a long and painful process trying to develop that side of the operation.

Due to lack of profitability and the need to diversify their product offerings, Saturn dealers begged GM for additional products at a time when both domestics and imports year ahead of them bringing popular minivans and SUVs to market.

Lack of profits limited Saturn's R&D efforts. Their vehicles were of good quality, but nothing better than the rest of GM. The quickest way to solve the problem was to tap into the strong product development of the other GM divisions where SUVs and minivans already existed.

This didn't pollute the "Saturn Way" in terms of customer/retailer interaction. It did create new and fine products for Saturn dealers to offer. My wife drives one of them - a Saturn Sky - which was developed simultaneously with Pontiac. The problem is that during the years where there was no step-up vehicle, Saturn customers became Toyota and Honda customers. Now they are gone.

Scion is the most recent attempt to create something new. It worked famously for 2 - 3 years, then it hit a zenith and sales have started to fall. Same problem. The difference is that it never has had to stand alone. Scion was housed within Toyota retailers' stores. Investments were minimum. Additionally, the step-up becomes a Toyota product. Additionally, the retailers didn't have to build free standing facilities with separate service departments.

In short, 23 years without profits must end. It is sad, as I am a fan of the Saturn line. I have many clients that are Saturn dealers. In the end I must go back to what I wondered 23 years ago, "Is it really needed?" It was supposed to capture import buyers and those not of the GM ilk. With a limited product line that would take years to spool up, I wasn't sure it was viable then, and certainly don't see how it is today. Should it be sold to another manufacturer ala Jaguar and Land Rover, I don't see how that will change a thing. I don't want for its Saturn's demise, but if GM doesn't survive, what use is it. One thing is sure, it certainly isn't for GM failing to give it sufficient time to develop. 23 years is certainly is long enough.

Tags: auto, automotive, autos, bailout, domestic, finance, gm, industry, retail, sales

Comment by Alex Kwanten on January 5, 2009 at 4:54pm: Saturn’s failings echo some of the poor decisions of its corporate parent during the last two decades. Poor product development, ignoring the customer, and then coming in at the last minute with good things only to find the buyers aren’t listening anymore.

Saturn’s inception came during the early 1980’s (development on the project began in 1982, the Corporation was founded in 1985), but the brand didn’t actually sell a car until 1990 – when the original S-series debuted. It was a unique model and shared nothing with other GM cars. Development of the first Saturns took a long time, and GM wanted to get it right – and to a large extent, they did. The original Saturn offered an Accord-sized car at or less than a Civic price, and quality was very high. Dynamics were also better than the front-drive GM10 cars which debuted in 1988 which were mechanical and stylistically similar but unrelated.

The no-haggle pricing, the friendly dealers, the quality cars that were up-to-date, and the brand new way of doing things worked with buyers. But then, in the early 90’s, things began to go awry.

Saturn was supposed to match Honda – but Honda updates its models every four years. After five years, the original Saturn models were looking a little old. They were totally restyled in 1996, but almost nothing changed underneath. Even when these revised cars were “new” they were already behind the times. Aggressive development of newer, even better, even higher quality models had to happen in the early 90’s for Saturn to start making money, and this didn’t happen. The “fresh” approach was eschewed in favor of less costly methods tried out on other models like the Chevrolet Cavalier.

The Cavalier, restyled and slightly re-engineered a year before the Saturns in 1995, retained big chunks of its Circa-1981 design right up until it was discontinued in 2005. This kind of thing is where GM's reputation for bad cars developed. The Cavalier wasn't a bad car in 1981, but it wasn't a great one either, and by 1990, it should've been replaced with a ground-up design. Instead it soldiered on.

The original Saturn design lasted twelve long years on the market – by which time the Honda Accord and Civic had gone through three redesigns each. Twelve years is an eternity in the automotive marketplace. Think about what you were driving twelve years ago and if it matches up well against what you’re driving right now (I’ll refrain, since 12 years ago I drove an aircraft-carrier sized ’76 Pontiac).

This was the basic flaw in what GM did with Saturn – it came up with a good idea and then let it wither on the vine until it was rotten. Then the corporation swooped in and diversified the line. The first car they did this with was the LS – a reworked MkII Opel Vectra that suffered from quality problems and high depreciation rates. This further diluted the brand’s image. In the last five years, emergency measures were taken and a rather good lineup of cars was created (with some teething problems, such as the Ion and the Relay minivan). But by now, the damage is done. The Saturn “beetlemania” era is almost fifteen years in the history books. It’s hard to get that back once you’ve let the fire go out.

In hindsight, it might’ve been better to reintroduce the Opel brand to Americans (who until the arrival of the Saturn Astra had not been able to buy a genuine German Opel since 1975). You can bet that much of Opel’s lineup will eventually find its way into American showrooms now that the ground has shifted so sharply towards European-style smaller cars and Ford is gearing up for introductions of European models to the United States this year.

Comment by David Ruggles on January 5, 2009 at 7:35pm: Alex has told it exactly as it was and is! I believe that had GM not priced the original Saturn models so far "under the market" their initial dealer success wouldn't have looked nearly as good. From my perspective, Saturn still has some value in terms of their dealer network and how they put it together. I'd like to see that concept continue on.

For the record, I'm not a fan of "one price." I remember going to J. D. Powers seminars in the early nineties where "one price" was highly touted using Saturn as the "proof of concept." I had a differing position in those days. I submitted that "one price" could work in the Pontiac business if every outlet in a market was owned by the same dealer, the cars were priced "under market," AND the manufacturer did not over produce and flood the rental business with vehicles." I stopped getting invited to attend J. D. Power seminars on "One Price."

Comment by JJ Hornblass on January 5, 2009 at 11:48pm: I was never a Saturn convert, but the franchise still seems to have value, particularly with a fully developed dealer pool. I don't think it would be too hard to turn Saturn around, get some of that "Beetlemania" back -- in a normal market. We are not, unfortunately, in a normal market, and that means ventures dying on the vine will surely be dead soon enough.

Just to comment on David's "One Price" point, I recall some years ago that JP Power-types had done research and concluded that consumers' greatest dislike in the auto-buying process -- if not in their retail purchasing experiences overall -- was the haggling over price with dealers. Car makers, and the Big 3 in particular, made haggling their No. 1 target for elimination, and in some ways the incentive programs have stifled haggling. Saturn did its part to minimize the culture of haggling among dealers, too.

Comment by Brian Reed on January 6, 2009 at 11:44am: I would like to comment on the "one-price" discussion. I think that as we speak the industry at all levels is in the midst of change, including how dealers sell cars. The Internet is continuing to create greater transparency of price and the consumers are starting to demand more and more that they be given the price of the car upfront. Would you walk in to a Best Buy to purchase a new 65" Big screen TV without knowing the price? If you googled the TV you were looking for and were not able to get a real price on the TV would you go to that store? It is my strong opinion, that especially as generation Y people become car buyers, that if a dealer is not totally transparent on price of their vehicle at the marketing stage, the generation Y consumer will not go to that dealership. I also feel the same is true relative to the negotiation process that takes place in the Finance Office of many dealerships. The car buyers of tomorrow will demand price transparency for the car they purchase as well as the financing.

Comment by David Ruggles on January 6, 2009 at 12:47pm: Despite the fact that customers answered J. D. Powers survey questions stating they hated haggling, another survey company came up with a completely different finding because they asked the questions differently. The issue between the two surveys was the talk at NADA circa 1992. In practice we all know that customers couldn't wait to go to the "One Price" store and take their price to the "regular competitor. Now we have the Internet so customers don't have to drive or even pick up the telephone to get pricing info. "One Price" could work in markets where a single dealer has all the outlet points If there is not over production of inventory by the manufacturer.

I think most of us remember how "One Price" worked for the "Auto /Collection", Ford's ill fated venture into the retail business. I had a close up look at it in Oklahoma where a friend has a Ford store on the fringe of Tulsa. He was quite disappointed when the "collection" went away and he had to deal with conventional competition.

After "One Price" was seemingly settled in the U.S. I encountered it again when I went to Japan a few years ago to do my annual seminar there. The Japanese were all worked up about it and I was required to weigh in. I told them as long as a vehicle is new and hot in the market place , and the manufacturer does their part by balancing production to demand, you have a shot at making it work. And work it did until a vehicle became "old" in the marketplace and the manufacturer overproduced and then provided "trunk money" to make the inventory go away.

Having said all this, there is something to be said for the concept of "Efficient Markets, especially at is is driven by the Internet." Dale Pollak has written about how the auto business has become such an efficient market that it is foolish to try to maximize profit through negotiation. He says, in his book "Velocity" that profit comes from driving volume through high turnover of inventory. I'm not sure I'm 100% in agreement with everything he says but I wouldn't rule it out. I don't think there are auto business model standards in existence these days that most everyone agrees on. We are truly in the midst of a radical change and we are all groping for answers.

Comment by Bob Burns on February 18, 2009 at 10:56am: "One Price" simply doesn't work when you have dealers competing with each other and the natural tendency for production to catch up to and eventually surpass demand. No mass produced car that I can think of every held a premium for very long. Think of the Mazda Miata, the Z-Cars from Nissan. Initial production and sales profits led to the inevitable softening of prices and profits.

It doesn't take a rocket scientist to realize that once a customer has gone away it's a herculean task to get him/her back. GM let their customers go elsewhere. Had the crash not occurred, they'd wouldn't be in the fix they're in now. No one in the car business is doing well (to say the least) but the Big Three are paying the price for their decades of hubris as it relates to the customer.

Saturn is just a textbook case.