Why Saturn Failed - Autoline on Autoblog with John McElroy
It conclusively proved General Motors could not profitably build a small car in the United States that was priced against the Japanese -- at least not under the current GM system. And that launched another study to figure out what it would take become competitive.
GM concluded that it needed a clean-sheet approach to designing, engineering, manufacturing and retailing small cars in the American market. In other words, it needed a whole new car company. And so Saturn was born.
John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as an auto industry insider to Autoblog readers.
When GM's chairman Roger Smith announced the company was launching a new car company the excitement was electric. Almost every state in the nation submitted a bid to try and get Saturn to locate in its backyard. The media frenzy reached a crescendo when GM chose Spring Hill, Tennessee as the site for the Saturn plant, but carried on well after that as publication after publication ran story after story of how Saturn was going to teach GM how to compete again.
The Spring Hill site was impressive. It was the first fully integrated manufacturing facility that GM had in the United States. Not only would the plant assemble cars, it would also make its own engines and transmissions, as well as do all of its own stampings and moldings, all at the same site. Additionally, Saturn did pioneering work in using lost foam casting to make cylinder heads and engine blocks. No one had ever done that before in mass production.
The engineering of the cars was still done in GM's Tech Center in Warren Michigan, but at a totally separate facility. In fact, the engineering area was laid out to mimic an automobile. All the engineers working on the front end of the car were located at the front of the building, everyone working on the interior of the car was located in the middle, while everyone working on the rear of the car were at the end. If you needed any information involving the engineering of the car, you knew exactly where to go.
The biggest breakthrough came with the new labor contract with the UAW. Any GM hourly workers signing up to work at Saturn had to give up all their seniority. Once they were in there was no turning back. And while their wages were not as good as a typical UAW worker's, they could earn bonuses based on quality and profits, which could push the total earnings above that of their other brothers and sisters in the union.
But the most transformational change was on the retail side of the business. GM went out and cherry picked the best dealers at the choicest locations and wrote up one out of the most innovative franchise agreements in the industry. Indeed, it was the retail experience which clearly set Saturn apart from every other mass-market brand in the business.
It started with a set price. There would be no haggling over the price of the car, you would pay what the sticker stated. Salespeople were paid a salary, not commissions, so there was no pressure to hound customers into signing. When you came to take delivery of your car everyone at the dealership would drop what they were doing and come over to congratulate you on your purchase. Anytime you brought your car back for service it would get washed for free. And customers were encouraged to stop in at Saturn dealerships anytime they were on the road to get complimentary coffee and doughnuts.
And the advertising was brilliant. With the tagline "A different kind of car company," Saturn ads spun a folksy story about the company, its roots in Tennessee, and about the kind of people who bought its cars -- all beautifully narrated in the mellifluous tones of pitchman Hal Riney.
One episode which really put Saturn on the map involved its first recall. A supplier, Texaco I believe, inadvertently sent the wrong kind of engine anti-freeze to the plant. It was like pouring Drano into the engine and destroyed it in short order. But instead of telling customers that it would rebuild their engines, or that it would replace their engines, Saturn told anyone who ran into this problem go to their nearest dealer and pick out a new car. At the time one of my friends had a Saturn which was not affected by the Drano problem. "Damn," he said, "sure wish my car had been recalled." That's when I realized Saturn truly was a different kind of car company. When have you ever heard anyone say they wish their car was recalled?
The cars themselves weren't that great. They were designed using a space frame construction covered with plastic body panels, a technique that General Motors had perfected with the Pontiac Fiero. The idea was that the plastic panels were so much cheaper to tool that Saturn would be able to do more frequent styling changes and that would keep it ahead of the competition. But that's not what happened.
General Motors poured over $3 billion into getting Saturn launched. After that, GM told Saturn it had to live off its own cash flow. But Saturn simply could not generate enough cash on its own, so it stuck with the same models long after they should've been replaced.
Indeed, some of Saturn's toughest competition came from within GM itself. A year before Saturn launched, Chevrolet launched its Geo brand to compete against the Japanese by selling Japanese cars. Other divisions complained that Saturn was getting too much money and attention from top management. And so Saturn languished for over a decade before GM got serious about providing it with a broader product line with fresh designs.
But by this time Saturn was no longer a different kind of car company. All the engineering, manufacturing and purchasing was moved back into the existing GM bureaucracy. The separate union contract was abandoned in favor of a typical UAW one.
And the new products, even though they were quite good, were significantly more expensive than the car's Saturn had been selling. Even though the brand had over a million satisfied customers, many of them could not afford any of the vehicles in the new lineup. Saturn walked away from its customer base.
To use a military analogy Saturn represented a beachhead for General Motors. It had successfully invaded enemy territory, and now had a toehold where it could capture import buyers. And sure enough, Saturn was definitely bringing in customers who otherwise would never by any other General Motors' products.
Instead of telling Saturn it had to live off its own cash flow, GM should have poured whatever it took into keeping that beachhead. Had it done so, the results could have been far different. But in the end the effort to save Saturn was too little too late. Just like Oldsmobile.
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