Saturn: An Image Makeover

Things are about to change at Saturn. The General Motors brand had only three iterations of the same compact car for the entire decade of the 1990s. But Saturn will soon intro­duce an all-new lineup of vehicles that includes a mid­sized sport sedan, an eight-passenger crossover vehicle, a two-seat roadster, a new compact, and a hybrid SUV. Having anticipated the brand's renaissance for years, Saturn executives, employees, and customers are beside them­selves with glee.

But with all this change, industry observers are wonder­ing whether Saturn will be able to maintain the very charac­teristics that have distinguished the brand since its incep­tion. Given that Saturn established itself based on a very narrow line of compact vehicles, many believe that the move from targeting one segment of customers to targeting multiple segments will be challenging. Will a newly posi­tioned Saturn still meet the needs of one of the most loyal cadres of customers in the automotive world?

A NEW KIND OF CAR COMPANY

In 1980, GM recognized its inferiority to the Japanese big three (Honda, Toyota, and Datsun) with respect to compact vehicles. The Japanese had a lower cost structure, yet built better cars. In an effort to offer a more competitive economy car, GM actually turned to the enemy. It entered into a joint venture with Toyota to build small cars. Soon, a Toyota plant in Northern California was turning out Corollas on one assembly line while making very similar Chevy Novas on a second. Meanwhile, in a long-term effort to make better small cars, GM gave the green light to Group 99, a secretive task force that resulted in formation of the Saturn Corporation in 1985.

From the beginning, Saturn set out to break through the GM bureaucracy and become "A different kind of car. A dif­ferent kind of company." As the single-most defining char­acteristic of the new company, Saturn proclaimed that its sole focus would be people: customers, employees, and communities. Saturn put significant resources into cus­tomer research and product development. The first Saturn cars were made "from scratch," without any allegiance to the GM parts bin or suppliers. The goal was to produce not only a high-quality vehicle, but one known for safety and innovative features that would "wow" the customer.

Saturn's focus on employees began with an unprece­dented contract with United Auto Workers (UAW). The con­tract was so simple, it fit in a shirt pocket. It established pro­gressive work rules, with special emphasis given to benefits, work teams, and the concept of empowerment. At the retail end, Saturn selected dealers based on carefully crafted criteria. It paid service personnel and sales associ­ates a salary rather than commission. This would help cre­ate an environment that would reverse the common cus­tomer perception of the dealer as a nemesis.

Finally, in addition to customer and employee relations, Saturn focused on social responsibility. Human resources policies gave equal opportunities to women, ethnic minori­ties, and people with disabilities. Saturn designed environ­mentally responsible manufacturing processes, even going beyond legal requirements. The company also gave heavy philanthropic support to various causes. All of these actions earned Saturn a number of awards recognizing its environ­mentally and socially responsible actions.

When the first Saturn vehicles rolled off the assembly line on July 30,1990, the company offered a sedan, a coupe, and a wagon in two trim levels each, all based on a single compact vehicle platform. In spite of this minimal approach, sales quickly exceeded expectations. By 1992, Saturn had sold 500,000 vehicles. That same year, the com­pany achieved the highest new-car sales per retail outlet, something that had not been done by a domestic car com­pany for 15 years.

Indeed, customers were drawn to all the things that Saturn had hoped they would be. They loved the innova­tions, such as dent resistant body panels, the high-tech paint job designed to resist oxidization and chipping longer than any in the industry, and safety features such as traction control, antilock brakes, and unparalleled body reinforce­ments. They were overwhelmed by the fresh sales approach that included no-haggle pricing, a 30-day return policy, and no hassle from the sales associates. The noncommissioned associates spent as much time with each customer as they wished, even going on extended test drives. Absent were typical high-pressure tactics so commonly used by automo­tive salespeople.

By 1994, Saturn had developed an unusually loyal cus­tomer base. The depth of customer relationships became apparent when 38,000 Saturn loyalists made the trek to company headquarters in Tennessee to celebrate the first five years at the company's Spring Hill Homecoming. It was "just like Woodstock without all the patchouli oil," beamed one proud SL2 owner. The homecoming set the mold for many company-sponsored customer gatherings to follow.

As Saturn's customer base grew, it became apparent that the Saturn brand was attracting customers who would not have otherwise purchased a GM vehicle. Interestingly, the Saturn buyer did not appear to be all that different from a Chevrolet buyer. With respect to household income, age, gender, and education, typical Saturn buyers appeared to represent the same Chevy-like cross section of middle-class America. But Wisconsin megadealer John Bergstrom said his network of 22 GM dealerships draws different types of cus­tomers to the two brands. With trucks accounting for 65 per­cent of his Chevrolet sales, he described the Chevy owner as "a true-blue, bow-tie America consumer." However, "the Saturn guest is a little different guest. They might buy an Asian car or a Korean car or a Saturn. They are very much into safety and value, and how they're treated is critically important. I don't think we'd get those kinds of people in our Chevy stores if we didn't have the Saturn brand."

During Saturn's first years of operations, the accolades rolled in. The list included "Best Car" picks from numerous magazines and organizations, along with awards for quality, engineering, safety, and ease of maintenance. But the crowning achievement occurred in 1995, as the 1,000,000th Saturn took to the road. That year, Saturn ranked number one out of all automotive nameplates on the J.D. Power and Associates Sales Satisfaction Index Study, achieving the highest score ever given by the organization. It would be the only company ever to achieve the highest marks in all three categories ranked by the satisfaction index (salesperson per­formance, delivery activities, and initial product quality). Saturn earned that honor for an astounding four consecu­tive years, and it was the only nonluxury brand to be at or near the top of J.D. Power's scores for the better part of a decade.

THE HONEYMOON ENDS

Despite the initially strong sales levels, overall Saturn rev­enues tapered off quickly (sales peaked in 1994 at 286,000, settling in at an average of about 250,000 units per year). This may have been due partly to the fact that Saturn released no new models in the 1990s. Finally, in the 2000 model year, Saturn introduced its long-awaited mid-sized L-series with an optional V6 engine. But unlike the S-series, the L-series was reviewed as a generally bland and forgettable car.

In 2002, Saturn broadened the lineup with the Vue, a compact SUV model. In January of 2003, it replaced the S-series with the Ion, a totally new compact that offered more options than before. But although these new vehicles addressed the issue of a lack of model options, they brought with them a new concern. Saturn's history of high quality and its long-cherished J.D. Power ratings began to slide. In the early part of the new millennium, not only was Saturn's J.D. Power initial-quality rating not near the top, it fell to below the industry average.

Even with the new models, Saturn's sales did not improve. In fact, they declined. This was partly due to an industry-wide downturn in sales wrought by a recession. Still, L-series production ended in 2004, only five years after it began. In 2005, Saturn sales fell to a low of 213,000 units, only about 1 percent of the overall market. It seemed that sales of the L-series and Vue were coming almost entirely from loyal Saturn customers who were trading up to something different, something bigger, and, unfortu­nately, something not as good.

Looking back, Saturn unquestionably defied the odds. To launch an all-new automotive company in such a fiercely competitive and barrier-entrenched industry is one thing. To achieve the level of sales, the customer base, and the list of awards that Saturn achieved in such a short period of time is truly remarkable. But as GM and Saturn executives faced the reality of declining quality, plummeting sales, and annual losses of up to $1 billion, they knew they had to do something dramatic. In 2006, Saturn general manager Jill Lajdziak said, "Saturn's initial image as a smart innovation small-car company was blurred by bumps in quality and slow model turnover. We didn't grow the portfolio fast enough, and this year we're growing in a huge way."

A NEW KIND OF SATURN

With all that Saturn has done wrong, the fact that dealers still moved 213,000 vehicles in 2005 against competitors with better reputations and better cars testifies to the things it has done right. With its rock-solid dealer network, high mirchase process satisfaction ratings, and loyal customer base, Saturn has valuable assets to build upon.

And GM plans to do just that as it addresses product quality and model selection problems. GM is currently investing heavily in a Saturn turnaround. Showering $3 bil­lion on Saturn, it hopes to perform a makeover between 2006 and 2008 that is similar to the one achieved with Cadillac earlier this decade. GM, the world's biggest car­maker, lost $10.6 billion in 2005. It's clearly putting some faith in one of its smallest brands to help turn the tide. GM wants to raise Saturn's sales to 400,000 units by the endof 2007. If all goes as planned, salescould reach 500,000 not longafter that. With higher prices and margins, this would represent an even greater growth in revenues and profits.

Key to the Saturn makeover will be an infusion of European styling from GM's German division, Opel. In fact, some of the new cars already hitting showrooms are largely rebadged Opels. In the future, new-product devel­opment will be carried out in a joint-venture fashion between the two divisions. For a company that in the past has been known as making the "car for people who hate cars," this is a 180-degree turnaround. Saturn clearly hopes to change its humdrum image to boost profits with higher-priced vehicles.

If the first of four new Saturn models is any indication, Saturn is moving in the right direction. The Sky two-seat roadster hit showroom floors in early 2006 with long wait­ing lists. Based on the Opel GT, the Sky is a head-turning performance vehicle, dubbed by one observer as the "cub- Vette." For dealer John Bergstrom, this new model pre­sented an unexpected but welcome dilemma. "Sky is just a flat-out home run," said Bergstrom, referring to the waiting lists that he has started at all six of his dealerships. "I've never had that before," he says, noting that those on the waiting lists are people who have never even considered a Saturn before.

In the fall of 2006, Saturn launched 2007 models of the mid-sized Aura sport sedan (based on the Opel Vectra) and the eight-passenger Outlook crossover vehicle (based on GM's Lambda platform being sold by Chevrolet, Buick, and GMC). For 2008, after a year without a compact car, Saturn will replace the Ion with a mildly changed Opel Astra, already a European hit in its fifth generation. The new lineup will also include the Green Line, which will add hybrid technology to multiple models, starting with the 2007 Vue. The Green Line promises to make full-hybrid technology available at a price much lower than any other hybrid offering.

"The biggest advantage to rebranding Opel vehicles as Saturn is it doesn't mean additional costs to GM," said Guido Vildozo, a senior market analyst and industry fore­caster at Global Insight Inc. "And since Opel is a kind of sporty European brand, Saturn will adopt this image too, or at least that is what they hope to happen." Some industry analysts suggest that because Saturn is such a new com­pany, it can reposition itself more easily than other brands.

GM makes it clear that with Saturn, it's not trying to make another Chevrolet. Chevrolet will remain the only GM brand positioned as "all things to all people." Along with the other GM brands, Saturn will play a niche role and target a specific segment of the market. In fact, GM says that it's just trying to help Saturn do more of what it has been doing all along—reach the type of import-buying cus­tomer it can't reach with any of its other brands. Indeed, top executives at GM acknowledge that many Saturn own­ers already believe their car is an Asian brand, not a domes­tic one. "Saturn has always been the one brand in the GM lineup suitable for attracting import-intenders," says a GM executive.

However, some questions remain as to what segment Saturn will actually target. After seeing the new Saturn lineup at the New York auto show, Tom Libby of Power Information Network says he's confused about what the brand is trying to do. He's worried that Saturn will stop focusing on the retail experience and shift to emphasizing styling. "What's the message they're trying to get out?" he asks. "I'm just puzzled by the whole thing." Is Saturn losing focus, or is it simply adding style to its current image of pro­viding a good value and an honest dealer experience? Many analysts believe that because Saturn's current image is only loosely based on the actual car, the company has plenty of room to add style to the formula.

Questions for Discussion

1.Using the full spectrum of segmentation variables, describe how GM has segmented the automobile market.

2.What segment(s) is Saturn now targeting? How is GM now positioning Saturn? How do these strategies differ from those employed with the original Saturn S-series?

3.Describe the role that social responsibility plays in Saturn's targeting strategy.

4.Do you think that GM will accomplish its goals with the "new Saturn"? Why or why not?

5.What segmentation, targeting, and positioning recom­mendations would you make to GM for future Saturn models?

Sources: Leslie J. Allen, "Saturn's Rebirth Vexes Chevy Dealers," Automotive News, February 20, 2006, p. 1; Sharon Silke Carty, "Saturn Puts Its Models Where Its Mouth Is," USA Today, April 21, 2006, accessed at www.usatoday.com; Barbara Powell, "GM's Saturn Seeks to Shake Up Humdrum Image," Ottawa Citizen, April 12, 2006, p. F7; David Welch, "Saturn's Second Liftoff?" BusinessWeek Online, April 13, 2006, accessed at www.businessweek.com; and "Our Story," accessed at www.saturn.com, May 2006.

Date: 2015-12-17; view: 1117