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.
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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.
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.
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.
“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.
So does this service get the best deal in the customer’s interest or the best deal for the dealer?