End of the road for Saturn as Penske walks away

Deal to save brand falls apart after auto retailer fails to find another car maker to manufacture vehicles once GM stops production.

General Motors Co. (GM-N0.75----%) is killing off its Saturn brand, ending a two-decade-old experiment that involved GM using “a different kind of company” to fight off competition from Japan-based auto makers.

Saturn Corp., the brainchild of GM chairman Roger Smith during the 1980s, was set to be sold to Penske Automotive Group Inc., (PAG-N19.18----%) but Penske walked away from the deal Wednesday.

“Today's disappointing news comes at a time when we'd hoped for a successful launch of the Saturn brand into a new chapter,” GM president Fritz Henderson said in a statement.

The deal fell apart because Penske was unable to find another auto maker to manufacture Saturn models after GM stops manufacturing them early next decade.

“Penske Automotive Group negotiated the terms and conditions of an agreement with another manufacturer, however that agreement was rejected by that manufacturer's board of directors,” Penske said in a statement late Wednesday. “Without that agreement, the company has determined that the risks and uncertainties related to the availability of future products prohibit the company from moving forward with this transaction.”

Penske, which is a major U.S. auto retailer and is the U.S. distributor of Mercedes-Benz's smart brand, had planned to take over Saturn's dealership and distribution network in the United States.

GM announced earlier this year that it would abandon the manufacturing and sale of Saturn vehicles as part of a major reduction in its brand portfolio.

It said it was closing Pontiac and seeking buyers for Saturn, Hummer and Saab. Saab and Hummer have been sold, although the deal to sell Hummer to a Chinese industrial company has not closed yet.

Saturn dealers in Canada, which were not part of the Penske deal, have been closing during the past few months.

The brand did little to stem the tide of market share losses that contributed to tens of billions of dollars in financial losses at GM this decade and its ultimate descent earlier this year into Chapter 11 bankruptcy protection after the credit crisis.

The first Saturn rolled off the assembly line in 1990. Sales peaked in 1994 at 286,000 cars annually and were in the 250,000 range for much of this decade.

“It's a national tragedy,” said David Aaker, a professor at the Haas School of Business at the University of California, Berkeley. In his book Building Strong Brands , Prof. Aaker discussed what made the Saturn brand so strong in the beginning. “It was the only organization in the U.S. that really had a quality culture to it,” he said. “A group of people committed to designing and building a quality car. It was unlike anything else any American car [maker] had done.”

Saturn's clustered dealer network allowed for a no-haggle, fixed pricing program, Prof. Aaker said. Since adjacent dealers weren't competing on price, they were able to deliver low-pressure sales tactics and focus on cultivating relationships with customers.

“The result was, they created an incredibly loyal customer base,” Prof. Aaker said. “It was like Harley-Davidson level loyalty, for a car that really didn't look all that different.”

A hundred people started the organization under the slogan, “A different kind of company,” separating themselves from GM and losing job security in the process, Prof. Aaker said. “The culture there was just so strong, and they were blessed with some really fine leaders at the beginning, which was indispensable.”

Consumer pride was also important to the brand.

“But then [GM] made the decision not to invest in the car for 10 years,” he said, and from that point on, it was just a matter of time before the brand was phased out.

The loss of Saturn is a blow to a loyal group attracted to the company's no-pressure sales approach and solid customer service. Gwen Wolansky, an Edmonton resident, bought her Saturn last year after negotiating with other companies.

“I found the Saturn dealer much more relaxing to deal with,” Ms. Wolansky said, adding it was the best deal financially and her cousin and friends spoke well of their Saturns. “No one's said anything bad about them.”

When Ms. Wolansky posted her concerns about paint chipping on a customer forum, she was surprised to hear directly from the company, which provided a contact to help with the paint issue. With the failure of Saturn, she's worried the problem might not get addressed.

“Now there's no incentive for them to keep you as a customer, so who knows,” she said.

Source;
http://www.theglobeandmail.com/globe-investor/end-of-the-road-for-saturn-as-penske-walks-away/article1307636/