The Demise of Saturn: Brand Versus Product

With the announcement that the collapse of a Penske deal to build Saturns will mean Saturn closes down over the next several months, a number of people are writing obituaries claiming to explain Saturn's failure.

The Christian Science Monitor explains that Saturn died from criminal neglect brought on by the hostility of all the evil bureaucrats at the company. The Wall Street Journal makes a similar argument, though it predictably blames the United auto workers especially. Automotive News argues the brand had bad timing—it came to SUVs just as the segment was dying, for example. All three are making a related argument, but remarkably, all three of these articles try to downplay the fact that Saturn was not profitable. CSM:

True, Saturn made money in only one of its 20 years of car production. But in the end, it was internal resistance to the funky start-up and its pioneer attitude that felled it.

WSJ:

GM is cagey about whether Saturn ever was profitable; the answer likely depends on accounting allocations for corporate overhead and the like. But in recent years Saturn, like the rest of GM, clearly was losing money. Without a special labor contract or any unique vehicles, Saturn was a clear candidate for closure when President Barack Obama's automotive team forced GM to downsize in the government bailout.

AN:

But the auto industry is merciless to players who don't change rapidly enough. And Saturn was whipsawed by a changing marketplace from the day it was born.

The problem, it seems to me, is that Saturn succeeded wildly at building a brand (which is why people uninvolved with the auto industry react with shock when they learn Saturn was unprofitable). But for a variety of reasons (many related to profit-based calculations within big companies), it failed to deliver the product to match that brand. It failed to make enough profit off each car to be sustainable over the long term.

The reasons why had to do with GM's relatively slow product development cycle in Saturn's early years, with declining willingness from managers to subsidize a losing product, and--as AN points out--it has a lot to do with GM's decision to reintegrate Saturn into the larger management structure of the company, making all these profitability-based decisions all the more lethal when weighed against other brands.

In short, Saturn quickly got launched into a vicious circle, where because of profitability issues, GM wouldn't invest in it, but without that investment, it couldn't succeed.

It's important to understand that cycle, though, and not just because 13,000 more people will lose their jobs. If GM and Chrysler are to survive, they're still going to have to solve the same problems, and do so without the brand value and optimized dealer network that Saturn had. GM is doing some things--such as insisting on retaining the Volt program in spite of expectations that it won't be profitable for years--that signal it may break out of the cycle. It has brought legacy costs down, largely through risky deals the UAW has accepted.

But it's not yet clear it can insulate product decisions from the vicious expectations of short-term profits. And it's not yet clear it can do so without doing what its competitors do: build a lot of the smaller cars in countries with cheaper labor and health-care costs.

The AN reviews a number of the ideas Saturn introduced, including manufacturing innovations like dent-resistant body panels, the three-door coupe, low-cost aluminum casting techniques, the science of color-matching paint-free plastic molding. Saturn proves American can still lead in innovations and brand. The question is, can American manufacturing do it profitably?

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future