Can Saturn Get Off the Ground Again?

After years of neglect, GM is giving it a major face-lift

Michael San Clemente has no big beef with General Motors Corp.'s (GM ) Saturn brand. After all, the 33-year-old marketing manager in San Francisco has had almost no mechanical problems in the nine years he has owned a 1993 Saturn SL sedan. So why is he looking to trade it in for a new Subaru Impreza, Toyota Prius hybrid, or Mini Cooper? He'd like something with more style. Says San Clemente: "It's hard to imagine anything less glamorous than a Saturn."

Ouch. Saturn stands out as one of the great marketing failures in recent automotive history. After accomplishing the supremely challenging task of launching a hot new car brand 10 years ago, GM proceeded to steadfastly ignore its new division as the Saturn product lineup got stale and the no-frills, no-haggle image grew old.

From its start in 1990, Saturn racked up an impressive 286,000 units sold in 1994, second only to Ford Motor Co.'s (F ) entrenched Escort among compact cars. And it has been losing ground ever since. Now, GM says, it's mounting a rescue mission for the money-losing division, with new marketing and an array of new models, some of which have already reached showrooms. The goal: to nearly double sales by 2005, to 500,000 cars a year.

Keeping upwardly mobile young Saturn owners like San Clemente is a big challenge. Winning new entry-level buyers who have barely heard of the brand is an even bigger task. Right now, Saturn's entire lineup consists of just three vehicles, and its marketing budget, though growing, is still tiny. Competitors such as Toyota Motor Corp. (TM ) and Honda Motor Co. (HMC ), meanwhile, are mustering armadas of gas-electric hybrids, coupes, sedans, sports cars, and sport-utility vehicles in a range of sizes, huge dealer networks, giant marketing budgets, and deep fund of consumer loyalty. Concedes GM CEO G. Richard Wagoner Jr.: "Saturn is still a brand in transition."

He should know. After all, Saturn's toughest competitors aren't from Japan; they are sister brands within GM, from truck lines to Oldsmobile, which routinely got the new products and big marketing budgets over the past decade. Company rivalries left Saturn without a single new car for almost a decade. Its repeat purchase rates dropped from almost 50% in the early '90s to 39% in 2000 as GM squandered the brand's early strength.

GM has already started rolling out the new Saturns. The compact Ion, the first new car off GM's all-new Delta small-car platform, makes its debut this month at $12,000. With a sportier drive than most compacts and inventive styling, Saturn expects to easily top the 160,000 units sold annually of the S-Series compact that the Ion replaced.

That follows the Vue, Saturn's first SUV, starting at $17,600. In keeping with Saturn's alternative-car image, Vue's transmission boosts fuel economy 10%, to 24 mpg, via a series of pulleys instead of gears, making it a "guilt-free" SUV. So far, though, the newcomer has enjoyed only modest success, toting up sales of just 37,000 units since its launch in March. The last car in the current troika is the recently freshened, midsize L-Series. Pitched as an elegantly styled alternative to the Camry and Accord when it launched in 1999, it has been viewed by consumers as a me-too product and ranks 19th of 25 in the most recent quality survey of midsize sedans by J.D. Power & Associates Inc. It has sold less than half the 230,000 cars annually that GM projected.

Clearly, that lineup won't be enough. So GM is scrambling to figure out what other models might work under the Saturn umbrella. By yearend, execs will decide whether to green-light a four-seat convertible concept car called Sky and a vehicle with sport-utility seating and a pickup-truck bed. A hybrid gas-and-electric vehicle is also being eyed, says Robert A. Lutz, GM's vice-chairman of product development.

To combat Saturn's stodgy, faded image and to give its new lineup a boost, GM is revving up the marketing. An intriguing TV ad from agency Goodby, Silverstein & Partners in San Francisco has been winning high marks from dealers for generating showroom visits from consumers they hadn't seen before. It shows squadrons of drivers on streets and highways making carlike maneuvers, but without a car around them. It's meant to drive home the point that Saturn designs its vehicles around the needs and lifestyles of its drivers and passengers. Although dealers usually frown on ads that don't focus lovingly on the sheet metal, many are buying in. Says Reese Hillard from his Saturn lot in Fort Worth: "This is one we desperately needed."

Still, the ad campaign's estimated budget of $300 million, though up from last year, won't be scaring Japanese rivals. In the import-heavy Los Angeles market, for example, the Toyota dealer association's $30 million ad budget is at least five times what Saturn's retailers spend. Gripes L.A. retailer Russell Hand: "We're so badly outspent that we're getting drowned out."

That's why Saturn is counting on some inventive promotional gambits to reach younger buyers where they hang. To appeal to such buyers' appetites for cheap chic, it has set a deal with hip discounter Target Corp. (TGT ) to sponsor weekend events and Ion giveaways. It's highlighting the brand's down-home nature by offering test drives of the L-Series sedan and Vue SUV at minor league baseball games in 28 cities. And it's taking the Ion on the road with rockers The Goo Goo Dolls.

Marketed right, these new models could do much to rehabilitate Saturn. "The brand isn't strong now, but new product changes that," says James N. Hall, vice-president of consultancy AutoPacific Group Inc. But only if GM stays committed. Lutz insists Saturn won't drop off the radar this time. "It's a brand that can and will be grown," he vows. GM can't afford to lose another decade before getting around to it.

By David Welch in Detroit

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