Thursday, April 30, 2009

Solving the Saturn Problem

When GM introduced the Saturn brand in 1984, it was meant to be a break from GM past. Saturn was built on an innovative small car and a dealership experience geared on treating the customer with respect, from a no-haggle pricing strategy to fresh-baked cookies in the lobby. At the dealership level, the brand was a success, and Saturn dealers ran up customer satisfaction scores that were much better than GM dealers as a whole.

Saturn was never a financial success for GM. The SL series that the brand was founded upon was expensive to develop. Chevrolet dealers, the root of much of GM's profit, complained that by developing the SL as an exclusive to Saturn to Chevrolet deprived them of a modern small car for years. Consequently, the SL series was the first and last Saturn-exclusive platform, thereafter, all Saturns would be based upon a platform shared by other GM divisions. As Saturn lost its exclusivity, it slowly started losing its reason to exist. As competition grew tougher, GM had more and more problems both supplying its multiple brands with unique and up-to-date models and supplying the brands with enough marketing support to drive sales of those models that were in the showroom.

Currently, Saturn has its best line-up of vehicles in a long time, perhaps ever, but sales have been awful. The Astra is a competent small car that competes directly with the Volkswagen Golf, one of the most popular cars in the world. The Astra now has huge incentives, but dealers still have trouble moving them off the lot. The Aura was car of the year when it was introduced a few years ago. The most frequent criticism of the car was lack of a rear seat armrest; and when that's the worst problem a car has, that's not too bad. Sales of the Aura are in the toilet. The Vue was recently redesigned. The Vue is a solid, competent small-to-midsized SUV/CUV. It's too heavy though, and sales have been low. The Saturn Outlook is one of the much-praised three-row GM crossovers. Chevrolet, Buick and GMC sell their own versions of the same vehicle, and there's just not enough market to support four versions of the same vehicle. The Saturn Sky, a two-seat convertible sports car, was never meant to be a high volume seller, and that's good, because sales haven't even met expectations.

Now that General Motors is effectively insolvent, GM has announced that it will no longer develop new Saturn models. There is talk that the dealers may take over the brand and source models from any manufacturer that will cut a deal with them, but there are a lot of obstacles in that plan. The primary obstacle is that nobody has figured out how to pay for it. GM tried putting Saturn on the market, but there were no buyers.

Here's my solution: give Saturn to Chrysler. Technically, GM wouldn't give Saturn to Chrysler, it would trade Saturn for Chrysler stock, but since Chrysler stock is worth next to nothing, it would effectively mean giving it away. Nevertheless, giving Saturn to Chrysler would solve problems for both companies.

Chrysler's biggest problem is almost the exact opposite of Saturn's. Chrysler doesn't have enough cars to sell. Chrysler has plenty of trucks, way too many, but cars worth selling are in short supply. When Daimler owned Chrysler, the new card development budget was whacked. Chrysler's designers were under pressure to use bargain basement parts wherever possible, and that penny-pinching was reflected in the quality of the cars. The newer car models have been savaged by critics and have proven to be much less reliable than average. The Dodge Caliber and its siblings are Chrysler's "small" cars, but they have trouble matching the fuel economy of midsize cars. I have joined the Chorus of people deriding the Chrysler Sebring for its looks, and it doesn't perform any better than it looks. The Dodge Avenger? See Sebring. Chrysler's 300 series was a hit when it was introduced, and it has some merit, but it's getting long in the tooth, and it's not enough to build a company upon. Compounding the problem with Chrysler's cars is that it has nothing int he pipeline to replace them over the next two years. Even a Fiat Merger won't do anything to help in the next two years. If the government props up Chrysler as expected, for two years or more, the government will have to cover the losses of a car company without cars to sell.

Here's how Saturn can help Chrysler, by merging Saturn with Chrysler, Chrysler dealers will have competent cars to sell much sooner than they could acquire them from Fiat or develop them in house. Suddenly Chrysler would have a competent small car (the Astra), Midsized car (the Aura) and small sporty car (the Sky). The Vue could fight it out with the Dodge Journey to see which is the survivor. The Outlook can either be dropped or serve as a complement to the Chrysler minivans.

Chrysler would help Saturn by giving Saturn a broader range of products including Dodge trucks and Jeeps. Later, there would be the potential to gain from The Chrysler/Fiat partnership and possibly through a partnership with Opel as well. The Saturn models would have better distribution, especially in rural areas that don't have a stand-alone Saturn dealership. In fact, this combination could take the form of a new keiretsu made up of GM, Chrysler, Fiat and Opel, with cross-ownership of stock all around. The product-planning model would be similar to that used successfully by Renault/Nissan and Ford/Mazda. GM can wholesale product to Chrysler in much the same way that Chrysler builds and wholesales the Routan for Volkswagen.

There are a couple problems with my solution, first is that it would exacerbate what is considered to be a current problem with Chrysler: too many dealers, as current Saturn dealers would be added to the Chrysler Dodge Jeep dealers. Personally, I've always thought that problem was overrated. Rhetorically, I counter: which problem would you rather have, too many dealers, or not enough product? Since the Saturn-Chrysler combination would likely occur in the context of Chapter 11 proceedings by GM and Chrysler, the dealer problem can be resolved through the Chapter 11 plan. The second problem would be too many models and brands. Again, which problem would you rather have, too many names or not enough product?

In summary, a Saturn-Chrysler combination solves a product problem for both Chrysler and Saturn. It increases fratricidal competition between dealers, but all of these dealers aren't going to make it anyway, the fittest will survive. Similarly, the car and truck models that are the fittest will survive. For a government-created enterprise that's a lot of Darwinism. Welcome to the new world.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.