Will Saturn Die Or Become a Purveyor of Other Companies’ Rebadges?
By Chris Haak
Wednesday night, GM’s Saturn division sent letters to approximately 1.5 million Saturn owners to alert them that even in the face of GM announcing that it would likely close down the Saturn brand, Saturn would not necessarily fade into the sunset in 2011 when the current models’ life cycles ended. Somewhat surprising, however, was the concept that the letter put forth of Saturn continuing beyond 2011 by distributing vehicles built by either GM or other manufacturers.
Saturn Distribution Corporation, or SDC, already exists as a subsidiary of GM, and is the entity with which Saturn dealers have their franchise agreements. Saturn General Manager Jill Lajdziak noted in the letter that any future Saturn vehicles – whether or not they were sourced from GM – would be “fuel efficient, safe, reliable, and affordable.” GM has asked Saturn retailers to not make any decisions about their franchises for 60 days to allow the company adequate time to study the spinoff alternative. A working group consisting of Saturn dealers, GM employees, and independent consultants is conducting the due diligence to determine what would be needed in order to spin off Saturn.
A spinoff of the Saturn brand would have several advantages to General Motors. First, GM won’t incur the the prohibitively expensive costs of shuttering a division. The cost of Oldsmobile’s demise in 2004 was estimated to be $2 billion (which sounds like chump change now, and in fact is the same amount that GM had to pay Fiat just to break up their joint venture a few years ag0). With fewer Saturn franchises than there were Oldsmobile franchises, but another five years of inflation, it’s unclear how expensive shuttering Saturn would be. Saturn showrooms are among the most modern in the GM universe, and are – according to the franchise agreement – required to be standalone stores. That means a more difficult transition to a different brand, but a consistently good and well-regarded customer service experience if there could be a way to keep the stores open.
The second advantage to spinning off Saturn would be the potential for a cash infusion from the entity that is purchasing it. Instead of paying $2 billion to make Saturn disappear forever, GM might be able to do the decent thing with its dealers and not forcing them to close, while still receiving some capital from the buyer. (Of course, like the Chrysler-Fiat proposal, it’s also entirely possible that GM would have to give Saturn away for nothing).
Third, the spun-off Saturn would not eat into marketing or product development resources, since marketing would be handled by the new owners, and product development for Saturn at GM has been halted. If the new potential owners of Saturn wanted new products, they’d need to find third-party partners (as Chrysler has done with Fiat) to rebadge their products and serve as only a distributor of other companies’ rebadged products.
Saturn’s biggest positive in this situation is its retailers; they have a well-deserved reputation for providing consistently outstanding customer service. Any company, such as perhaps one based in China with designs on the US market, and without any current distribution channel in the US would probably find a purchase of that portion of Saturn to be particularly attractive.
As I said a few days ago, I confessed that always find rebadged vehicles to be intriguing. I have no clue who a suddenly-independent automaker like Saturn might decide to turn to in order to get new products from after 2012. Might it be Nissan, who has pulled back somewhat from their joint venture with Chrysler – at least temporarily? Really, nearly any model – and indeed nearly any manufacturer – might be a potential Saturn rebadge distribution partner in 2012.
The big “if,” however, is whether GM is able to find an interested buyer for Saturn. Saturn Distribution Company really is a perfect name, because it’s in the unenviable position of being a car company that has no ability whatsoever to make cars. This is a terrible time to try to sell a damaged asset such as Saturn, but perhaps it might still have a chance if dealers can pool their resources together to buy SDC, or if a Chinese company with US market ambitions such as Chamco or Chery wants a quick entry into this auto market. Actually, Fiat would have probably been better off buying Saturn just to get a distribution channel of clean, well-mannered, customer-centric dealerships. Unfortunately, I don’t see this playing out to a happy ending for Saturn and GM. My expectation – and I hope I’m wrong – is that GM will not be able to find any entity with sufficient interest in Saturn, and will end up having to pay big dollars to make Saturn go away.
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