Auto industry continues to evolve
By Tom Krisherand and Colleen Barry, Associated Press
Saturday, June 6, 2009
DETROIT -- Roger Penske is inventing a new business model on the ruins of General Motors Corp.
The auto racing magnate and mega dealership owner is snapping up Saturn and opening his expanded sales network to foreign automakers looking to sell cars to Americans.
The deal announced Friday is another example of how the cataclysm that hit Detroit's three carmakers is reshaping the global automotive landscape in profound ways, reducing their worldwide influence and -- if Saturn turns out as Penske envisions -- opening new markets to smaller companies.
"There's no doubt that the automotive deck chairs are changing," said Michael Robinet, vice president of CSM Worldwide, a Detroit-area auto industry consulting firm.
In the shake-up, well-known brands are changing flags quicker than an oil tanker in pirate-infested waters. Italy's Fiat SpA is waiting for U.S. courts to approve its acquisition of Chrysler LLC's assets, GM has worked deals to turn its German subsidiary Adam Opel GmbH over to a Canadian auto parts company with Russian backing, and Hummer may be going Chinese, although state media there reported Friday that the deal has hit regulatory hurdles.
Yet industry experts are doubtful that the flurry of mergers and alliances will be any more durable than failed marriages of the past, proving to be just one big distraction from the underlying issue that made them so vulnerable in the first place: making more cars than people can buy.
Still, Penske, who already runs Penske Automotive Group Inc., the second-largest U.S. dealer network, thinks his business model is different enough to be successful.
GM and Penske expect to close the Saturn deal in the third quarter, with the wounded Detroit automaker continuing to build three models for Saturn to distribute.
Key to its success, though, will be the ability to sign on other global manufacturers to make cars for Saturn, giving it a diverse portfolio of vehicles that will sell whether gasoline prices are high or low.
But by opening the door to automakers not now in the U.S., such as France's Renault, Penske could alter the market here, allowing smaller automakers to compete against Detroit.
Penske, in an interview with The Associated Press, said foreign automakers would be key to his business model, but they will have to match GM quality standards before Saturn's 350-dealer network will distribute their products.
"As people around the world look at that, they have the opportunity to tap us on the shoulder and say 'We have product that we'd like to bring into the U.S.,'" he said.
Penske said he expects to begin making money immediately on Saturn, which has never been profitable for GM.
"I would expect that the model that we're putting together, the distribution model, will be profitable Day One," he said. "We'll have less costs. We'll not be in the manufacturing side of it."
For years, the U.S. auto manufacturing base has been too large for the market, forcing automakers to overproduce to keep plants running and flooding the market with vehicles. As a result, the Detroit Three especially have been forced to discount vehicles to sell burgeoning inventories.
But Penske said the continued restructuring by Chrysler, GM and Ford Motor Co. should solve that problem, at least in the U.S.
"I think there's no question that this re-engineering of the manufacturing base in the U.S. by the Big Three will take capacity out," he said. "But more important, the plants that will survive will be the ones that are most efficient."
