Commentary: Can Opel Make Saturn Sparkle?

GM is turning to its European cars for salvation. It may be the last best hope

For years now, General Motors Corp. (GM ) has tried to drag its Saturn Div. into the black. While Saturn's sales have rebounded somewhat from the lows of the late 1990s, they aren't rip-roaring. With only three models, Saturn sales will drop 3% this year, to about 273,000 vehicles roughly where they were a decade ago. Meanwhile, losses will hit roughly $1 billion. So why bother investing in Saturn if it doesn't make money? For one thing, Saturn remains one of the rare U.S. carmakers to attract import buyers. For another, consumers love its no-pressure sales tactics. That's why Robert A. Lutz, GM's vice-chairman for product development, dismisses critics who say Saturn ought to be shut. He calls revitalizing Saturn "one of our top priorities."

Problem is, GM can't afford to lavish money on fixing Saturn. Instead, BusinessWeek has learned, the auto giant is turning to its European subsidiary, Adam Opel (GM ), for salvation. GM is already relying more on Opel, using the platform for its Vectra midsize sedan to build a replacement for Saturn's slow-selling L-series in 2006. More important, starting in 2008, Opel will develop as many as three models it will sell under its brand at home and as Saturns in North America. The idea is to share development costs while bringing European sophistication to Saturn's faded brand. Saturn marketers have said they'd like to position the company between Volkswagen and Honda Motor (HMC ). It's a risky plan, but one that GM badly needs to get right. Says a GM exec: "If this makes it, Saturn will survive."

The strategy, which the GM board may approve in January, faces big hurdles. The Saturn cars would be engineered in Germany and built in the U.S. While that makes sense on paper, previous efforts by GM, Ford Motor Co. (F ), and others to create cars for different global markets built on shared platforms have been costly failures. And GM's efforts to sell rebadged Opels in the U.S. have fizzled.

Moreover, Opel itself has been in a slide for years, raising questions about whether it has the ability to create cars jointly for Saturn. In the 1990s, after GM had the German company develop cars for new markets in South America and Asia, it lost its focus in Europe. Quality slipped and Opel missed big shifts as the market moved to diesel, wagons, and convertibles. Now, it's starting to recover on the strength of some new vehicles; GM's shift of new car development for emerging markets to its Asian affiliates has also helped. Losses are shrinking, quality is up, and Opel's European market share is expected to hit 9.6% next year, up from 9.3% in 2003. Says James N. Hall, an analyst at AutoPacific Inc: "Opel's products are getting better." Still, forcing Opel to again take on global design chores could put that recovery at risk.

GM also must avoid repeating mistakes like those that doomed the current Saturn L-Series sedan, launched in 1999. Opel engineered the car using the underpinnings of its Vectra midsize car. While the Vectra was a solid seller in Europe, GM restyled it to look like the bland Saturn S-Series compact. GM also softened the ride, eliminating most of the sporty driving dynamics that draw buyers to German cars. The upshot: With neither the desired cachet of a Volkswagen nor the unquestioned quality of Japanese cars, the L-Series bombed.

This time, GM insiders say, it will be done differently. For the cars set to come out starting in 2008, Opel designers will work with their U.S. colleagues to fashion cars from scratch. But most of the work will be done in Europe. The new models will include a small SUV, a replacement for the Saturn Ion compact, and a new midsize car that resembles the Opel Vectra. GM sources say future Saturns will feature Opel's European styling and driving performance so they will stand out from GM's U.S. models.

Still, 2008 is a long way away. Meanwhile, GM is adding new cars to fill out Saturn's lineup. Next year, the Relay, a U.S.-designed minivan will appear. The following year, Saturn will likely roll out a small sports car built on the same platform as the new Pontiac Solstice roadster, but styled in Europe. And besides replacing the L-series with the Vectra platform, Saturn will sell a crossover SUV engineered and designed in the U.S.

GM's strategy for Opel isn't perfect, but it beats the alternative. "It's better than what Saturn would have had any other way," says Hall. If Opel can give Saturn some good cars, Saturn may once again become a viable American brand.

By David Welch

    Before it's here, it's on the Bloomberg Terminal.