Saturn's own dealers may rescue GM brand

Saturn's own dealers may rescue GM brand
Carmaker's buyer could be its sellers

By G. Chambers Williams III
March 8, 2009

Don't write the obituary for Saturn just yet - and it could be the
brand's own dealers coming to the rescue.

General Motors Corp. plans to spin Saturn off into an independent
distribution company, which could then contract with someone else to
build a new line of vehicles and keep the brand alive.

One surprise twist that's gaining credence among auto industry analysts
holds that the eventual buyer could be Saturn's own 208 dealers. Other
options are that a coalition of investors, or even another automaker -
perhaps one from China - could step forward, dealers and analysts say.

How much Saturn would sell for and how a deal would be financed remain
up in the air, but Jill Lajdziak, Saturn's general manager, said a
solution could come as early as mid-April.

Nashville-area Saturn dealer C.M. "Bill" Gatton said he's sure the
much-loved brand that got its start in Tennessee two decades ago can be
saved. "I have no doubt Saturn will survive and come out stronger," he
said.

GM said last month that it plans to shed the money-losing Saturn
division as part of its corporate restructuring in conjunction with
taking more than $17 billion in emergency loans from the U.S. government
and taxpayers.

Saturn's dealers and GM's managers are working on a possible spinoff
plan that would maintain the current dealer network but eventually field
a new line of non-GM vehicles under the Saturn name. GM has said that it
won't provide products to Saturn's dealers beyond 2012.

A new company would be free to enlist other automakers to build vehicles
to replace those now in Saturn showrooms.

Lajdziak is spearheading the efforts to save the iconic brand, which was
born in Tennessee in 1985.

"We think there is a good business model for Saturn in the marketplace,
and we are working in concert with our retailers to find the right
solution," said Lajdziak, who has been with Saturn since 1986 and helped
set up its unique dealer network - which was best known for pioneering a
fixed-price sales policy.

"We have a very strong brand that is loved by consumers, and we have a
great opportunity the way we are franchised to spin this off," Lajdziak
said.

Brand was answer to Japan

Saturn was conceived in the early 1980s by then-GM Chairman Roger Smith
as a semi-independent company intended to show consumers that an
American automaker could build economical small cars as well as the
Japanese carmakers.

Smith chose Spring Hill as Saturn's headquarters and plant site, and
Saturn began building the first cars there in fall 1989. Production of
Saturn vehicles ceased in Spring Hill in March 2007, however, and the
plant began building a new Chevrolet crossover utility vehicle last
year.

Unlike the rest of GM's brands, in which dealers are franchised directly
by the automaker, Saturn's 208 dealers, who operate nearly 400 stores,
are franchised through the Saturn Distribution Corp., a wholly owned GM
subsidiary.

With a spinoff, all ownership ties to GM would be severed, said Tom
Zimbrick, a longtime Saturn dealer who owns stores in Madison, Wis., and
Rockford, Ill., and serves on a 16-member Saturn Franchise Operations
Team.

Eight of those members are dealers, and the rest are employees of
Saturn.

The newly independent company would have to arrange for vehicles from
any manufacturer willing to build them to Saturn's specifications,
Zimbrick said. That could be a Japanese, European, South Korean,
Chinese, Indian or even another American automaker, he said.

Several scenarios are being considered, including an outright purchase
by another automaker that wants to enter or expand in the U.S. market.
Because of confidentiality agreements, Zimbrick and Lajdziak declined to
name specific investors or automakers involved in talks. But both said
that interest has been surprisingly high.

"All options are still on the table," Zimbrick said.

Gatton said he's encouraged by the early reports from the spinoff
negotiations.

"They tell me it's a real surprise how many manufacturers are interested
in supplying vehicles to Saturn dealers," he said. "Saturn has the
strongest brand image of any domestic automaker in this country."

From the start, Saturn cultivated a consumer-friendly retail environment
that provided hassle-free, fixed-price sales and emphasized service
after the sale, said George Peterson, president of the consulting firm
AutoPacific.

"Any manufacturer would be well served to tie up with the
Saturn distribution organization," he said. "This could develop into
a very positive situation that would keep Saturn dealers alive, while
bringing in fresh, new products."

Because most automakers now have substantial excess manufacturing
capacity, almost any one of them could build cars for Saturn, Peterson
said.

And it wouldn't just be the newcomers from China and India, which are
looking at establishing themselves in the U.S. market, he suggested.
Mazda, Mitsubishi, Subaru - any of those could potentially provide
vehicles, maybe even GM once more, Peterson said.

The GM gambit would come into play if the carmaker wanted to serve as a
hired hand to build the cars further into the future, get incremental
business and use excess capacity at any of its factories.

French automaker Peugeot is another possibility, Peterson said. Italy's
Fiat might have been a good match, but it has already announced plans
for a partial merger with Chrysler.

"Maybe Fiat moved a little too fast with that deal," he added.

Customers have faith

No matter which scenario GM chooses, Saturn's current customers will be
taken care of, and dealers will continue to provide parts and service
for the GM-built vehicles, Lajdziak said.

While some dealers reported a drop-off in sales after GM announced in
December that it was considering dropping the Saturn brand, others say
customers don't seem overly concerned.

"I have heard nothing negative from any of our customers," said Robert
Miles, general manager of Saturn of Cool Springs, one of Gatton's
stores.

"They know we're going to be here and they're going to be taken care
of," Miles said of customers. "Our sales are down 40 percent this year,
but so are everyone else's.

"That's the economy, not uncertainty about Saturn. We still have loyal
customers; they love the sales and service experience; and they say they
want us to stay in business."

Brentwood resident Pauline Hawkins is one of those loyal customers.

She bought a new Aura midsize sedan at the Cool Springs store last week,
trading in one she had leased two years ago.

"I really didn't even think about the possibility that Saturn might not
be around," she said as she waited in the showroom for her car to be
prepped for delivery. "I'm sure I won't have any problems getting my car
serviced."

As for the Aura, which was introduced for 2007 and won the North
American Car of the Year award: "I just love it," Hawkins said. "It's
the nicest car I've ever had. I just hope they keep making it."

U.S. Sen. Lamar Alexander, R-Tenn., is another satisfied Aura owner. He
said Friday that he hopes a deal can be worked out to save Saturn, a
company that he helped lure to Tennessee.

Nissan's 1980 decision to build a plant in Smyrna, and then GM's choice
of Spring Hill for the Saturn operation - both during Alexander's tenure
as governor - "brought enormous attention to Tennessee," he said.

Alexander said he met with GM's Smith at a hotel in Memphis, along with
then-U.S. Sen. Howard Baker, to try to persuade him to choose Tennessee
for Saturn's debut.

"I figured that the fact Nissan was already here was either the hook or
the kiss of death," Alexander said. "I told him, 'Why not put Saturn
right next to Nissan and say we can do it, too?' He did, and it changed
Tennessee permanently."

Although none of Saturn's current vehicles is assembled in Tennessee,
the Spring Hill plant still makes engines and replacement parts for
several Saturn models.

Operating Saturn as an independent distribution company wouldn't be a
new idea, dealer Zimbrick said. There are several similar distribution
companies already in business in the United States, he said.

For example, the Japanese automaker Toyota has two independent
distributors - Gulf States Toyota, based in Houston, and Southeast
Toyota, in Jacksonville, Fla., which control dealer networks ranging
from Texas to Florida.

The Japanese automaker Subaru also uses an independent U.S. distributor,
as does Daimler-Benz for the sales of its Smart car.

"We're very excited about the possibilities for Saturn," Zimbrick said.
"I believe it's our chance to make history again."

Additional Facts
HOW A SATURN SPINOFF WOULD WORK
* Saturn would become an independent distribution company, maintaining
the current network of 208 dealers and nearly 400 stores.
* The new company would be free to contract with another automaker to
build and supply vehicles to Saturn's extensive dealer network.
* The dealers themselves might decide to own the distribution company or
outside investors might buy it.
* A foreign automaker seeking to enter the U.S. market for the first
time also might be interested.

- G. CHAMBERS WILLIAMS III