Penske's Saturn: The Post-Modern Auto Company

Auto companies have traditionally been engineering and manufacturing businesses, rather than marketing and retail businesses. Henry Ford, for example, insisted dealers pay for his Model Ts as soon as they left the factory door. But what made sense in Henry's time, and reached its apotheosis with the huge River Rouge plant, the most vertically integrated automobile factory in the world, has become a liability today.

Auto plants cost staggering amounts of money to build and to run. And in an era where the manufacturing process no longer delivers major differentiators in terms of the finished product -- all vehicles have to meet similar safety and fuel economy mandates, and the cost and quality differences between the best and the worst are getting smaller all the time -- that's money many auto industry insiders wished they no longer had to spend. Especially as what largely defines an auto company these days is not where its products are made, but how its brands are perceived by consumers.

A Boxster is still a Porsche, even though it is built in Finland by Valmet. A Grand Cherokee is still a Jeep, even though it is built in Austria by Magna Steyr. Right hand drive Mercedes C-Class and BMW 3 Series models are still seen as German cars, even though they are made in South Africa.

Which is why Roger Penske's Saturn play is a stroke of genius. With Saturn, Penske has the opportunity to create the first truly post-modern auto company. Penske's Saturn doesn't own a single factory, design studio, or proving ground. What it does own -- and all it needs to own -- is the intellectual property of the Saturn brand.

It's hard to imagine a more perfect candidate to become a post-modern auto company than Saturn. Envisioned by GM chairman Roger B. Smith as an import fighter because of advanced manufacturing techniques that included a highly automated plant and plastic body panels, Saturn succeeded not because the original car was good -- actually, it wasn't even remotely competitive with anything from Toyota or Honda -- but because it was cleverly sold and marketed. Saturn consumers bought into the defining promise of the brand -- no haggle pricing and great customer service -- rather than the physical attributes of the vehicle.

Although GM has agreed to build Saturns for Penske for at least two years, future Saturn models may be sourced from a variety of automakers around the world (the latest rumor has Penske talking with Renault). Saturn could simply rebadge another manufacturer's existing model, paying for U.S. market certification costs and minor cosmetic changes, or it could commission an automaker to design, engineer and manufacture a complete new vehicle. Either way, it could bring new models to market for way less capital cost than a traditional automaker.

Finding someone with spare factory space to build Saturns won't be hard: The world's automakers currently have the capacity to build 92 million vehicles a year, but will be lucky to build 60 million in 2009, says respected industry forecaster CSM Worldwide. And with the global economy expected to recover slowly from recession, there's going to be plenty of spare capacity around the world for a long time yet.

All Penske's Saturn has to do to succeed is sell cars and trucks that deliver on the promise of the Saturn brand. The actual vehicles can be made anywhere, by anyone, and as long as they are competitive with the mainstream players in their respective segments in terms of performance, economy, quality, and equipment levels, it almost doesn't matter what they are, because the

Saturn brand is mostly defined by a classy purchase experience. And if there's one thing Roger Penske knows how to do with class, it's selling cars and trucks.
Posted by Angus MacKenzie

At Saturn, a Split Over Relying on the Penske Name .

By JOHN D. STOLL

DETROIT -- General Motors Corp.'s Saturn unit is set to be sold to a new owner later this year, but any road to recovery for the slumping brand will be challenging.
Known for no-haggle pricing of inexpensive small cars, Saturn has for years struggled to escape its niche by building a broader customer base.

Though its fortunes soured further in December, when GM said it would sell or close Saturn, they got a boost June 5 when Penske Automotive Group Inc. -- the big chain of auto dealerships owned by motor-racing mogul Roger Penske -- struck a deal to buy the brand. "We were on death row," said Saturn Marketing Director Kim McGill, in an interview. Now, the brand is in "remission," thanks to Mr. Penske, but "is not yet totally cured," she said.

Scott Davies, owner of Saturn of Wichita, Kan., continues to tout Roger Penske's plan to buy the brand, which GM has asked dealers not to overplay.

To spark interest and remind consumers that Saturn is still alive, its dealers have kicked off a new marketing campaign built around the slogan, "Wonder where the car business is headed? It's here." The slogan will be used on banners across Saturn storefronts and in a spate of email blasts, Facebook blogs and direct communications with buyers.
In the second week of July, GM will start advertising deals on Saturn vehicles in a bid to clear dealer inventories, Ms. McGill said.

But at least for now, GM has asked Saturn not to trumpet the Penske connection -- even though some dealers think it is the biggest thing the brand has going for it -- lest it overshadow the Saturn brand name. The deal may not be sealed until late in the third quarter, Ms. McGill said.
Through May, Saturn's sales this year have tumbled 58% from a year earlier to 35,256 vehicles. By contrast, Kia Motors Inc. of South Korea sold four times as many cars in the U.S. over the same period, and Toyota Motor Corp.'s sold nearly as many Camry sedans -- 31,325 -- in May alone.

Enthusiasm about the Penske deal helped Saturn in June, Ms. McGill said, drawing more traffic into Saturn showrooms and leading to a 35% year-to-year sales increase.

Mr. Penske, known for building an auto-retailing empire and for his career as a race-car driver and team owner, signed a memorandum of understanding earlier this month to buy Saturn from GM. The brand's dealers rushed to embrace the new owner, praising Mr. Penske's business acumen.

At Saturn of Oak Lawn, Ill., a suburban Chicago dealership, Saturn owners also showed support for the Penske deal. A handful of customers in the service department gave sales manager Marty Mollway a standing ovation as he wrapped up a TV interview the day the deal was announced. "I think people were simply responding to the idea that someone new was going to take over," he said.

Within a day of hearing Mr. Penske had a tentative deal, Scott Davies, owner of Saturn of Wichita, decided to let central Kansas know about it. "Finally, a car guy owns a car company," Mr. Davies proclaimed on billboards hovering over two of the city's busiest intersections in early June.

He said the ads increased traffic to his dealership. "People want to buy from someone they like," Mr. Davies said in an interview. "A lot of customers won't buy a car from GM, but they will buy a car from Roger Penske."

Not long after dealer initiatives like Mr. Davies's billboards began to crop up, Saturn dealers got a letter from GM executives asking them to not overplay the Penske deal, for fear of taking the spotlight off the brand itself.

Saturn of Scottsdale, Ariz., has continued to tout the Penske deal on its Web site, and Mr. Davies last week put up more signs, this time on his store's front lawn, saying "Penske buys Saturn, the fans go wild."

This year's plunge in Saturn sales has left the company's 350 dealers with an inventory of 32,647 vehicles -- enough to last for 105 days at the current rate of sales, according to Autodata Corp. That's one of the industry's biggest inventory backlogs. By comparison, dealers have a 74-day supply of GM's Buick brand.

Saturn also continues to face other, longer-term issues. Customer loyalty, once a strength, is faltering. In 2008, 37% of Saturn owners looking to buy a new car bought another Saturn, according to J.D. Power & Associates. That was down from 45% in 2007 and compares with retention rates of around 65% for Toyota.

Saturn's model lineup also is in flux. A new model, the Astra, flopped and is being discontinued, leaving the brand without a compact car. "They've gotten away from their roots in terms of offering an affordable small car," said Charlie Eickmeyer, a Saturn owner and founder of the 13-year-old Saturnfans.com Web site.