PUMPING THE BRAKES : Losing Money, GM Is Cautiously Retooling Its Strategy for Saturn
A decade ago when General Motors Corp.’s then-chairman, Roger B. Smith, announced the formation of Saturn Corp., he declared that the small-car venture was “the key to GM’s long-term competitiveness.”
Smith, who was given to fits of hyperbole about the future, retired in 1990 with a tidy pension and tarnished reputation shortly after driving the first Saturn off the assembly line here.
Today, GM is still struggling to become competitive and make money in the U.S. auto business. And Saturn, which enjoys status as a cult car among loyal owners, is bogged down in an identity crisis.
While Saturn is an unabashed hit with consumers and continues to rewrite the book on car marketing and selling, the company--the first major new U.S. car venture since the 1950s--has fallen short on most promises of bringing technological, manufacturing and labor relations changes to GM.
Most important, it is far from clear that Saturn will ever provide a decent return on the $5-billion investment GM poured into the car-making experiment. Saturn, which sells for $10,000 to $18,000, is a high-quality import fighter, but not one that makes much, if any, money for GM, critics say.
“They are a marketing success, but have not made the basic goal of making a small car profitably,” said Maryann Keller, an auto industry analyst and author of two books on GM.
This shortcoming more than anything else is prompting GM to rethink Saturn’s role within the world’s largest car company. Already GM has begun to rein in its progeny: Last month, GM placed Saturn under the same management umbrella as its other small cars.
While GM officials insist Saturn will remain independent, it clearly is losing some of its freedom and uniqueness. GM has said that Saturn in the future will share designs, engineering and other resources with other GM divisions. Its next vehicle could be a version of a small European-designed Opel sold under a Saturn badge.
“I know there’s talk that the whale has swallowed the guppy,” said Saturn President Richard (Skip) LeFauve, who is also in charge of the small-car group. “But the basic Saturn franchise will remain independent and focused on the same basic principles.”
The uncertainty that surrounds Saturn is largely the result of the financial turmoil that has plagued GM in the past four years. A shortage of funds has stalled Saturn’s efforts to expand, a step needed to assure its profitability in a low-volume, low-margin segment.
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But GM, which has lost more than $17 billion in North America since 1990 and saw a recent turnaround stumble in the last quarter, insists that Saturn must come up with a credible business plan before it gets more resources for another plant and new vehicles. It must also compete against other GM divisions, such as Chevrolet, which have long felt shortchanged as GM wrote checks for Saturn.
The doubt about Saturn’s future is wearing on workers. “People are concerned,” said Mike Herron, 32, who works on the Spring Hill assembly line. “We know we need another plant to make Saturn a profitable, stand-alone company. We don’t want to see an outside product that compromises our quality and image.”
Image has always been part of Saturn’s mystique. When Project Saturn--named for the rockets that propelled the first U.S. space vehicles--was announced in late 1983, Roger Smith said GM would build a small, fuel-efficient car that would outdo the Japanese and make money--something U.S. auto makers had been unable to do for decades.
It would be built in “the factory of the future,” one that would be highly integrated, heavily automated, using advanced technology and manufacturing techniques. The work force would be unionized but equal partners with management, and would have a voice in all major decisions.
In essence, Saturn would be a laboratory for changing GM. But it has not quite worked out that way.
“Saturn has been successful, but it didn’t turn out to be what GM intended,” said John Casesa, an analyst at Wertheim Schroder & Co. in New York.
The company showed it could produce a world-class automobile that could wrest customers away from the Japanese, but it has not lived up to its promise of being an agent of change for hidebound GM, he said.
“It’s has a mixed record,” agreed Robert Rehder, a professor of management and organizational behavior at the University of New Mexico. “The car has been an unquestionable sales, quality and marketing success. But the company has had significant problems with productivity, costs and profits.”
Under the leadership of John F. Smith Jr., who was named chief executive and president in late 1992, GM is looking throughout its far-flung operations for solutions.
The result is that Saturn appears to be less a model for change than New United Motor Manufacturing Inc., the Fremont, Calif., joint venture with Toyota, or Opel, GM’s European unit whose Eisenach plant in eastern Germany produces a small car efficiently. Smith previously worked at NUMMI and in Europe, where lean manufacturing techniques have taken root.
In contrast, Saturn--whose impressive plant is the size of 90 football fields, with 4.1 million square feet under one roof--is hardly a model of modern manufacturing efficiency.
Its work force of nearly 8,000 is nearly twice as big as those of plants producing comparable numbers of cars. This is in part because Saturn produces almost everything on site, including many components that could be produced more cheaply by non-union suppliers.
“Some of these things are inherently expensive,” said David Cole, director of the University of Michigan’s Office for the Study of Automotive Transportation. “They would do things different if they could do it over again.”
Saturn has developed some manufacturing innovations. For instance, it perfected a low-cost procedure for casting engines. The company also developed a “skillet” system, a moving pallet that allows workers to remain stationary while working on vehicles passing by on the line.
Still, the assembly line is stopped on average more than 1,000 times a day to fix problems on passing vehicles. Even though showroom quality is high, half the cars must be repaired before leaving the factory, often a costly and time-consuming procedure.
A recent study of manufacturing efficiency among major auto makers found that Saturn needs about 30 man-hours to produce a car, compared to about 20 hours for the Honda Civic. Robert Boruff, Saturn’s vice president for manufacturing, said Saturn is improving its efficiency and now takes only 27 man-hours per car. The company plans to match its competitors, he said.
“There will be a significant reduction in our hours per car,” Boruff said.
The company has indicated that it might reduce the work force while maintaining current production of 280,000 vehicles annually or increasing it to the maximum capacity of 320,000 cars. Boruff said the company wants to reduce the number of workers on the assembly line by 1,000 by 1997.
But Saturn’s innovative labor contract guarantees workers job security. So the company hopes to reduce staff through attrition or transfers to a new plant if an expansion is approved.
The labor contract with the United Auto Workers is the most celebrated aspect of the Saturn experiment. But labor relations are also being strained by Saturn’s growing pains.
The contract provides for flexible work rules, salaries with bonuses tied to performance, quality and attendance, and joint labor-management decision-making on everything from design and marketing to choosing suppliers.
The original Saturn workers were UAW volunteers from other GM plants who chose to be part of a new way of doing things. Later workers came from closed GM plants and did not always buy into the Saturn concepts.
The result of this cultural clash surfaced last year when Mike Bennett, president of UAW Local 1853, was forced into a run-off, winning reelection with a slim majority of the vote.
In recent months, Saturn employees, who typically make about $45,000 a year, have complained about the four-day, 10-hour rotating shift system, which requires them to switch frequently between day and night workweeks. Some also gripe about excessive overtime.
A union survey of the work force released in October found “an overall increased presence of frustration, discouragement and apathy.” About a fifth of the work force said Saturn is “heading in the wrong direction.”
Bennett said Saturn is suffering from a lack of support from GM’s upper management as well as from the UAW international in Detroit.
“Saturn’s future is probably in jeopardy,” he said. “I don’t understand where GM is going with Saturn. I don’t understand what impact it may have on our partnership.”
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While many applaud the Saturn teamwork concept, labor experts say it would be difficult to transfer to other GM plants, where the work force is older and more opposed to changes they warily view as concessions.
UAW Vice President Steve Yokich, who heads union negotiations with GM and is expected to become union president in 1995, is opposed to expansion of Saturn’s plant while GM is still closing inefficient plants elsewhere. He is also unlikely to accept a Saturn-like contract in another plant.
“Saturn is a noble experiment,” said Irving Bluestone, a former UAW official and now labor relations professor at Wayne State University in Detroit. “But it is not likely to spread rapidly in the auto industry.”
What is radiating from Saturn is its marketing concepts. Saturn created a highly trained dealer network. Dealers are given exclusive territories and sell cars for a set price with no haggling. The system is among the industry leaders in quality and customer satisfaction.
The company has attracted import buyers--college-educated with high incomes--who in the past turned up their noses at GM products. It has created a distinctive culture that permeates the company from the assembly line to the dealer service bay.
David Aaker, marketing professor at UC Berkeley, said Saturn’s biggest accomplishment is its strong brand identity. “It’s an incredible achievement that they have been able to build a strong culture in the company that oriented toward the customer and quality,” he said.
Its dealers sell only Saturn’s sedans, coupes and station wagons. As a result, the 311 dealers sell on average more than 1,000 vehicles a year, by far the industry’s highest sales per dealer for a single brand.
“We try to help people buy a car, rather than sell them a car,” said marketing Vice President Donald Hudler.
The result is happy customers. J.D. Power & Associates, an auto marketing analyst, ranks Saturn just behind Toyota’s Lexus and Nissan’s Infiniti luxury brands in surveys of customer satisfaction after one year of ownership and in satisfaction with the sales experience.
Saturn is attracting the kind of buyers it targeted: former import owners and non-GM customers. More than 50% of Saturn buyers say they would have bought an import and 75%--in California, 83%--say they would have bought a non-GM car.
The company has even turned problems into pluses. Even though Saturn has recalled vehicles several times, it has gotten high marks for addressing the problems directly and accommodating customers to get the repairs done.
Such treatment has helped develop a cult-like following. Hudler says 61% of Saturn owners buy another new Saturn when they trade in their old one. Such loyalty was on display this summer when about 20,000 Saturn owners traveled to Spring Hill for a company-sponsored homecoming party.
But some analysts worry that Saturn’s 4-year-old design is getting stale as the competition is getting stronger. Chrysler has made some inroads with its sporty Neon, priced about $1,000 less than Saturn, which sells for about $14,000 well-equipped. Saturn only this year offered a passenger-side air bag to match Neon.
A newly designed Saturn will be introduced in 1996, and company officials want to add more models to the stable. Part of the debate within GM is whether Saturn should get a smaller car or a larger one.
Most analysts would like to see Saturn stay in the small-car segment. They would like to see a cheaper car, perhaps similar to Opel’s Astra, that could continue attracting new buyers to GM.
Others, however, believe Saturn must go higher in the market with a mid-size sedan that would compete with the Honda Accord and Toyota Camry. The danger is that such a vehicle could take sales away from other GM divisions.
Saturn President LeFauve said GM has made no decision on Saturn’s direction and that many scenarios are under consideration. The debate includes everything from future vehicles to added capacity to production sites.
For nearly two years, LeFauve has been lobbying for an expansion of the Spring Hill plant to bring capacity up to 500,000 cars. But others, including the UAW, want a GM factory scheduled for closing to be used for Saturn’s expansion.
GM’s own financial problems have overshadowed the needs of its small-car company. In the last two years, GM has trimmed staff, closed plants and wrested lower costs from suppliers. But the auto maker still has a long way to go, as evidenced by the $328-million loss in took in its North American auto operations in the third quarter. GM blamed the loss on overtime costs, labor strikes and high vehicle launch costs.
While Saturn maintains that it was “marginally” profitable last year and will be again this year, most analysts say the company is engaging in creative accounting. They say Saturn can be profitable only if GM has forgiven a large part of its development costs.
But LeFauve said Saturn has contributed many things to GM, which are given an intangible value on the company’s books.
“I can look you in the eye and say we are making a profit,” he said.
To some, Saturn’s profit is beside the point. They maintain that Saturn’s success in the marketplace and the innovative programs it has developed are worth the costs.
“Saturn is one of GM’s few bright spots,” said Aaker, the UC Berkeley professor. “They should run with their success. It could have a lot of positive impact on the rest of the company.”
The recent decision to put Saturn in the same management group as GM’s other small cars is in line with Smith’s efforts to streamline GM by standardizing parts and processes throughout the behemoth organization. He said Saturn should share its strengths with other divisions and vice versa.
The big question is whether this can be done without damaging Saturn’s cachet and image, which are distinctive from GM’s.
“We would be crazy to do anything to jeopardize the distinctive Saturn brand,” LeFauve said. “GM will protect it.”
Meanwhile, in Spring Hill, workers worry about the future.
“We’ve achieved so much in so few years,” said Herron, the assembly line worker. “We are on a continuing journey here. I hope the shortsightedness of some people doesn’t cut our journey short.”
number of assembly line workers by 1,000 by 1997.
The Little Car that Could
Sales of General Motors’ Saturn car line have increased steadily since its introduction in 1990. Saturn is expected to sell more than 280,000 vehicles this year.
U.S. SALES
1994: 215,741 (Through Oct. 31)
Source: Saturn Corp.
MARKET SHARE DATA
Saturn’s popularity has made it a formidable competitor in the small-car market. In 1993, its sales ranked third in the segment.
Rank / Model / 1993 market share
1. Chevrolet Cavalier: 9.8%
2. Ford Escort: 9.6%
3. Saturn: 8.2%
4. Ford Tempo: 7.8%
5. Toyota Corolla: 7.0%
Source: Ward’s Automotive Reports
KEEPING CUSTOMERS SATISFIED
Saturn’s biggest impact has been on car retailing, where its innovative methods have made it a leader in quality and customer satisfaction, according to rankings by J.D. Power and Associates of Agoura Hills.
Sales Satisfaction
Measures buyer’s experience during the shopping and purchasing process. Industry average of 122.
Lexus: 157 Infiniti: 156 Saturn: 153 Cadillac: 148 Lincoln: 142 Audi, Buick: 139
Customer Satisfaction Measures satisfaction after one year of ownership. Industry average is 135. Lexus: 176 Infiniti: 171 Saturn: 155 Acura: 150 Audi: 148 Toyota: 146
Initial Quality Measures problems in the first three months of ownership. Industry average is 110. Low scores are better. Lexus: 54 Toyota: 69 Infiniti: 75 Lincoln: 76 Saturn: 78 Mercedes-Benz: 91 Source: J.D. Power and Associates
