Saturn Corp., the upstart automaker created to revive its parent, General Motors Corp., is having a tough time growing up.
After a dazzling start, Saturn is grappling with too many cars, a 3-year-old design and some new, attractive competitors in the small-car market.
At the same time, it must solve a related and even more difficult puzzle: How to fit in with the often fractious, often cash-short GM family of vehicle divisions ranging from Cadillac to GMC Truck.
Since it began selling cars in 1990, Saturn, with its high-quality small cars, no-haggle sales policy and emphasis on customer service, accomplished the chief goals that GM set for the “corporation within a corporation.”
It went head-to-head with the Japanese automakers and built a virtual cult of converted buyers among affluent Baby Boomers, Detroit’s most coveted and most elusive market. It also pioneered some marketing ideas that other GM divisions have borrowed.
Trouble is, Saturn, which by some outside estimates cost GM $5 billion, barely makes any money, a situation that appears unlikely to change soon, with Saturn’s sales proving slower than expected.
It also is not clear that Saturn’s success at luring Baby Boomers will benefit GM. The Saturn buyers think of themselves as Saturn buyers-not GM buyers-and they may resist switching to another GM division, such as Chevrolet, Oldsmobile or Buick, when they want a larger car or truck.
Saturn, which produces a sedan, coupe and station wagon, has no larger car or truck.
“Saturn was handicapped-and I think this is ultimately their problem-by the fact that its product line was limited,” said Maryann Keller, an auto analyst for Furman Selz Inc. “No brand can survive with that limited a product line.”
No one is predicting Saturn’s imminent demise, but it is at a crossroads. If its product line grows, its dealers probably would steal even more customers from other GM divisions. And it would have to fight still more vigorously with other GM divisions for car-development funds.
Saturn has never been popular with GM’s divisions. Its creation and its success implied criticism of their ways, and it siphoned scarce resources.
Now, given the new generation of managers at GM, intent on squeezing substantial profits from every investment dollar, Saturn increasingly looks like the odd man out.
“In their heart of hearts, the current management feel that if they didn’t have Saturn already, they wouldn’t do it,” said Dave Healy, auto analyst with S.G. Warburg & Co. in New York. “It’s been a pretty good-size cash drain on GM.”
Saturn’s chances of growing any time soon are in doubt, with even some Saturn loyalists questioning the possibility of its adding a second factory. “There’s just too many things working against Saturn at this point, within General Motors and the UAW,” said Mike Bennett, the president of the United Auto Workers’ local who helped pioneer the unique labor-management relationship at Saturn.
“We have less champions today than we had two or three years ago,” he said. “The new leadership within General Motors does not have as much ownership in Saturn as I would like them to.”
Saturn’s future has become an issue at GM because for months Saturn has been on the verge of asking GM for its second assembly plant to greatly expand its production capacity, now 322,000 cars a year.
The extra production, Saturn officials have long maintained, is essential to making the corporation strongly profitable.
“We can be profitable without it, but we can be far more successful over time by having added capacity,” said Donald W. Hudler, vice president for sales, service and marketing at Saturn. “The key to making money in this business is volume.”
Hudler acknowledged that there was more competition for money in GM, particularly given the company’s goal of putting more resources into truck production.
But “there’s a strong appetite on the part of General Motors to see us continue to broaden the base, and capitalize on the brand Saturn,” he added.
One obstacle to a new plant is that the UAW has made clear that it will not permit Saturn’s labor arrangement to spread unchanged to other plants.
Another obstacle, and by far the more worrisome, is that Saturn has been unable to sell all the cars it can make in the one factory it has, in Spring Hill, Tenn.
After an increase in production last fall, Saturn abruptly cut back in March by more than 25 percent because cars were piling up on dealers’ lots. Sales, however, climbed last month and production was raised to 1,133 cars a day from 800 in March.
Saturn attributed the sales slowdown to a variety of factors, including the harsh winter in the Northeast.
However, many auto analysts are skeptical. “There’s been a little fibbing going on,” Healy said. “The production cutback is due to a shortage of car buyers.”
Healy, other analysts and auto dealers say Saturn is suffering from an influx of fresher and cheaper competitors. Other dealers have begun duplicating Saturn’s innovative sales techniques, taking some of the novelty out of the Saturn buying experience.
All this while Saturn’s cars have not had a makeover since they appeared more than three years ago. They lack not only some competitors’ curves, but also some of their standard equipment, such as passenger-side air bags.
“I think Chrysler’s Neon is going to eat ’em for lunch,” Healy said, referring to the new subcompact.
In the short term, Saturn is likely to bolster its sales with cheaper leases and an aggressive advertising campaign.
Opening new retail outlets also will help spread inventory more thinly. Some of those tactics can be costly and Saturn barely managed its first pretax profit last year. For 1994, Hudler said, “we fully expect to be profitable.”
And even as it faces a changing competitive environment in the small-car market, Saturn must deal with a changed atmosphere at GM.
Though created to renew the corporation, Saturn is very much a product of the old General Motors. GM, then under the leadership of Roger B. Smith, ponied up billions in the 1980s to create a separate organization with development, production and marketing operations.
Officials at Saturn pointedly refer to their organization as a “corporation,” distinct from GM’s six car and truck divisions, which are responsible only for marketing.
That distinction may no longer be an asset, because GM’s new managers are intent on consolidating vehicle development, engineering and production.
GM chief executive John F. Smith Jr. has repeatedly said he is awaiting Saturn’s proposal for expansion before making any decision about a new factory.
Larger questions about Saturn’s role in the corporation will not be addressed until that proposal is made, a GM official says.
Hudler would not set a date for making the proposal, which GM executives expected to receive late last year. “We hope to do it this year,” Hudler said.
One of the greatest assets Saturn can point to in making its proposal is its customer base. Its buyers are the ones that GM and other automakers are most eager to capture.
The average age of Saturn buyers is 40, and most have graduated from college-compared with only about 17 percent of the buyers of Chevrolet’s Cavalier sedan, another GM small car.
Saturn buyers’ mean household income is $57,000, far higher than that of Cavalier customers. More than half of Saturn’s customers would have otherwise bought imports, said Saturn.
“From a generational standpoint, it’s been incredibly successful,” said Christopher W. Cedergren, senior vice president of AutoPacific, a consulting firm. That fact, Cedergren said, could save Saturn.
“You really want to put your money behind the divisions that are most likely to win over the new generation of buyers,” he said.
Saturn’s success is partly attributable to its quality, which ranks high in independent surveys.
Further, the consistently friendly, even obsequious service from Saturn dealers-free car washes, salesmen spouting poetry, free steak dinners-has raised standards for all auto dealers. Saturn’s scores in customer satisfaction surveys put it in the same class as luxury brands such as Lexus and Infiniti.
Given those advantages, Saturn’s delay in proposing a new plant could be costly.
GM has delayed a planned overhaul of the Saturn design. For this fall, the cars will get only a new interior, including a passenger air bag. A total overhaul is scheduled for late 1995.
In the meantime, Saturn’s competitors are introducing several new products, many designed to be manufactured more efficiently and sell for less. Among the notable ones are a redesigned Chevrolet Cavalier and Chrysler’s Neon.
Cedergren estimates that a similarly equipped Neon sells for $13,000, about a thousand dollars less than a Saturn-and the Neon has a passenger-side air bag and much more horsepower.
