Selling Saturn will cost GM

General Motors’ decision to sell Saturn to auto magnate Roger Penske doesn’t make much sense to me. If anyone can make a go of it, it’s Penske. But it has the acrid whiff of a bad deal from GM’s end.

Penske plans to use those Saturn retail stores to sell cars potentially made by manufacturers in Europe or Asia. While he may only select cars from one or two automakers, those companies will could be companies that don’t have a presence in the U.S. market already. For them, it makes great sense because they avoid the cost, risk and years of development time it takes to set up a successful retail network. Saturn, for all of the mistakes GM made over the years, has a great retail network. It is known for its no-haggle, no-pressure sales approach and customer service. Its customers loved it even when the Saturn cars weren’t so great.

Through Penske’s acquisition, someone like France’s PSA (parent of Peugeot and Citroen) or India’s Tata Motors or any number of players from China can get into the U.S. That basically removes the biggest natural barrier to entry, which is developing a sales chain. Longtime GM watcher Maryann N. Keller, who sits on the board of retailer Lithia Motors, points out that whoever Penske gets to supply cars will be in direct competition with GM. I made the same point in this blog entry when Saturn went on sale. For its part, GM will still build Saturn vehicles for the next year or so. If Penske wanted, he could even have GM build Saturn vehicles on contract beyond that.

Frankly, I’m not sure that Penske will succeed. Saturn’s brand is more damaged than many people think. The Saturn Aura was North American Car of the Year, but sales were weak because the brand didn’t draw showroom traffic. From the cold view of an economist, weak carmakers like Chrysler, Mitsubishi and poor brands like Saturn, Hummer, Saab and Volvo should be victims of the crisis. They can’t make money so they go away, leaving a stronger industry for the survivors. That’s what happens to weak players who didn’t justify their existence before the nasty downturn.

By keeping Saturn around, GM has preserved one more brand the market doesn’t need and opened the door for more competitors to come into its most vital market. This is a market, by the way, that is already hotly competitive. GM is struggling to remake some of its brands and beat back the notion that the company is a failed enterprise. Since GM was already in bankruptcy, they could have killed Saturn off with minimal cost. Instead, they sold it off. If Penske succeeds with another carmaker, the cost could be huge.

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