Running Rings Around Saturn

Rivals are stealing the carmaker's once-loyal customers. Is the magic gone?

No one has to tell Russell E. Hand how badly Saturn Corp. needs new models to sell. The Torrance (Calif.) Saturn dealer has been watching helplessly as rival Toyota Motor Sales USA Inc. and American Honda Motor Co. lure his once-happy small-car customers into roomier Camry and Accord family sedans. "If someone really needed a bigger car, we didn't have a way for them to go," laments Hand.

Small wonder, then, that when the General Motors Corp. division finally delivered the new L-Series midsize car to its long-suffering dealers last summer, hopes were high. After all, Saturn dealers have had a one-car lineup for 10 years. While GM was investing in its other established brands, Saturn was repeatedly passed over for a new model. Even a redesign of its aging S-Series compact was turned down. As a result, the brands' once-legendary popularity has plummeted as Saturn owners defected to the competition's larger cars, sport-utility vehicles, and newly designed small cars.

Falling behind on new models has cost Saturn and its parent dearly. While just 5.6% of GM's sales at its height in 1994, Saturn, with its fresh image and huge customer following, represented one of the few bright spots on the auto giant's horizon. Since then, however, sales have fallen 20%. Last year alone, small-car sales plunged 10%, even though small-car sales industrywide rose 7%. And in J.D. Power & Associates' 1999 sales-satisfaction index, consumers ranked Saturn sixth--the first time in four years the brand wasn't on top.

If all that weren't troubling enough, now comes the lukewarm reception of the new L-Series midsize car. It was to be Saturn's savior, designed to lure new buyers and bring back its old customers. But when dealers finally got an ample supply of LS sedans and LW wagons, the crowds never showed up. "The bloom is off the Saturn rose," says former dealer David McDavid of Dallas.

Since July, L-Series sales have averaged fewer than 5,000 cars a month, falling far short of GM's projections of 15,000 monthly sales. That forced Saturn, glutted with inventory, to halt production at its Wilmington (Del.) plant for two weeks in January. Meanwhile, Saturn competitors continue to rack up sales in the midsize car market. In January, Toyota Camry sales of 40,285 and Honda Accord sales of 24,241 dwarfed the 4,381 L-Series cars sold. Those numbers are even more startling considering both the Camry and the Accord sell for a few thousand dollars more than the $16,000 to $22,000 price range for an LS sedan. "We get a lot of Saturn trade-ins," says George Black, general manager of Mile High Honda in Denver.

So what's the problem? Uninspired styling of the L-Series hasn't helped matters, analysts insist. But last fall's $82 million-plus "Next Big Thing" advertising campaign somehow failed to make clear the car's roomy midsize dimensions--one of its major selling points. The ads portrayed the car as a fun family sedan, but did little to show that the car was larger than the Saturn compact.

Now, as the L-Series' problems linger, Saturn has quietly moved to slash its production. Suppliers say the company told them in recent weeks it will crank out just 150,000 cars annually, instead of the 200,000-plus originally planned. That means GM will likely have to pay suppliers more for parts, cutting already thin margins--about $2,000 per car. That's only about one-fifth of what auto makers can gross on their bigger sport-utility vehicles, says Rod Lache, a Deutsche Bank analyst in New York who estimates that the Saturn Div. is at best "marginally profitable."

"DISHEARTENING." It's all a huge comedown since the days when Saturn was GM's hottest unit and one of the true success stories of U.S. auto makers in the early 1990s. But what bothers Saturn fans most is that clear signs of trouble went ignored for years. "It's been a great franchise, so it's disheartening to see things go awry," says Dallas Saturn retailer Randy Hiley. "The market changed, and Saturn wasn't ready for it."

Saturn's customers and dealers have, in fact, long clamored for more models. But early on, cash-strapped GM was forced to make tough choices about where to invest its capital. Saturn lost out to Oldsmobile in a debate among executives over whether to kill Olds or revive it at Saturn's expense, says retired Saturn President Richard G. "Skip" Lefauve. "We were a small subsidiary trying to work our way to profitability," he says. "That was more risk than [GM] wanted to take." Instead of giving Saturn a new car when the brand was hot in the mid-1990s, Olds and other divisions got new product money.

Many of the L-Series' current woes stem from the way GM finally agreed to grant Saturn a new model. To save on costs, GM had Saturn share the basic chassis undercarriage with the Vectra sold in Europe by the company's Adam Opel AG unit. The car was designed by the two units at GM's European engineering center in Russelheim, Germany. Saturn, however, didn't do enough early dry runs with workers to iron out bugs in the assembly process. The result was poorly fitting parts and slowed assembly time. There were also shortcomings in adapting the European design for the U.S. market. Tiny cup holders, for example, had to be quickly redesigned to accommodate Big Gulps. By the time Saturn got the manufacturing problems worked out, it was winter rebate season and rival car companies were laying out deals to move cars off their lots. But that's a practice Saturn has long shied away from because of its no-haggle sales philosophy.

Saturn executives aren't apologizing for the L-Series missteps. "There are glitches in every launch," explains Saturn President Cynthia Trudell, a former Wilmington plant manager hired a year ago to ignite a turnaround at the static division. "Our launch was complex because it was done globally," with production and design spanning three continents. Trudell also blames stagnant sales on last fall's failed ad campaign.

CHANGING TASTES. Now, GM is scurrying to undo the damage. "We have to get consumers to see Saturn as more than a small-car company," says Ronald L. Zarrella, GM's president for North American operations. So Saturn is rolling out a new series of uncharacteristically aggressive ads created by Publicis, Hal Riney & Partners, the same ad agency it used before. These ads pit the L-Series directly against the Accord and Camry, even showing them in one commercial. But relaunching cars with new ad campaigns is notoriously difficult. And Trudell concedes that the company has lost crucial momentum. "You can't change what happened," she says. "You have to make the best of what you have going forward."

It won't be easy. The original subcompact sedan and coupe targeted the Toyota Corolla and Honda Civic head-on. Saturn sold 2 million small cars in the 1990s, and fully 60% of those were snapped up by former foreign-car owners. But this time around, the import lovers aren't biting. "We were hoping for a larger proportion of Camry, Accord, and Taurus buyers," says Mark Pagan, general manager of Saturn of San Francisco, a dealership. "We're not seeing that yet." Current consumer tastes haven't helped Saturn much either as buyers move increasingly toward SUVs and luxury cars, which Saturn doesn't offer.

Typical of the type of Saturn owners who have defected in droves in recent years is Karan Berryhill, 23, who recently traded in her Saturn coupe for a new Honda Civic. Like many other former Saturn owners, Berryhill complains that the carmaker has been glacially slow in upgrading its models. "I liked the Saturn, but it's too rough and noisy," she says. "They'd made some improvements to the new one, but not enough."

With that sort of customer dissatisfaction, it's no wonder that its retailers notice a lot less traffic in showrooms these days. A few have sold their stores. Others are hanging on, hoping for a turnaround. "Now we're making a little or losing money," says Dallas dealer Hiley, bemoaning his 16% drop in 1999 sales and profits.

CUSTOMER CONTROL. With profits down, Saturn dealers are trying to make money any way they can. For example, says J.D. Power analyst Brian Walters, is that the dealers are negotiating harder on trade-ins to beef up their profits. "It hasn't gone unnoticed by Saturn buyers," says Walters. Executives at GM counter that the brands that beat Saturn are customer-pampering luxury marques, adding that no mainstream division has matched Saturn's customer-satisfaction levels.

The carmaker faces another new challenge--a growing number of better-informed buyers with easy access to dealer invoices from the Internet. As a result, consumers are far more willing to haggle and far less impressed with Saturn's once-vaunted no-hassle pricing policy. "Control over negotiating is shifting to the consumer," says Loretta Seymour, a J.D. Power director. "And that's biting Saturn."

GM executives, troubled by Saturn's decline, are anxious to keep the division healthy. So the auto giant, eager for the younger, import-loving buyers that Saturn used to attract, is placing more bets on the division. But has the moment passed? "To me, it's never too late," Trudell says. But many former Saturn owners now driving Japanese cars obviously disagree.