GM's Saturn Division Reports First Profit, Ignoring Capital Cost
DETROIT — WHAT'S several billion dollars?
Three years after its debut on the American market, General Motors Corporation's Saturn division has posted its first monthly profit. Well, not quite. The subsidiary went into the black in June on an operating basis. But that ignores the estimated $3 billion to $5 billion GM spent to get the division up and running during an eight year start-up.
For all practical purposes, company officials have written off that investment. But not without some justification, as Saturn is proving one of the industry's hottest nameplates.
"We've moved the needle from `stupid' to `lucky,' " jokes Saturn marketing chief, Donald Hudler, noting that many analysts originally questioned the wisdom of the Saturn project.
Indeed, Saturn has generated more than its share of controversy from the moment it was conceived 11 years ago. GM's first new division in more than 50 years, Saturn was handed a daunting mandate: to not only develop a car that would compete with the best imports, but also to break the rules that have made GM so uncompetitive.
Though Saturn's Spring Hill, Tenn., factory is highly automated, the most significant aspect is its unique labor contract, which is far more flexible than contracts found at other GM plants. So while Saturn workers earn slightly more per hour than those at other GM factories, total labor costs are lower. And the contract is designed to give workers more input - and require them to do more to minimize defects.
Saturn's success, however, appears to be based on its unusual approach to sales and marketing. First, there is its unique distribution system where dealers are given franchise over a wide geographic area in which they can open numerous outlets. And they emphasize a "no-haggle" price policy, where customers do not have to bargain for the best deal.
SATURN has placed a high priority on pleasing buyers. When more than 1,000 cars were inadvertently filled with a defective batch of antifreeze, the company replaced the vehicles rather than making minor repairs. Saturn's emphasis on personal attention is reflected by the fact that for two years in a row it placed third on the J.D. Power Customer Satisfaction Index, behind Lexus and Infiniti. "Saturn is a place where we can try things that would be controversial in other divisions of GM," says division pr esident Skip LeFauve. Saturn's most successful techniques are being borrowed by other GM divisions. The ailing Oldsmobile division is putting many of its executives and dealers through the Saturn customer service training program.
Since the beginning of the decade, GM's North American automotive operations have been buried by record losses. Saturn did not help. The brand lost about $700 million last year, and it is likely to post a loss for all of 1993. Still, division officials could not help but boast when they recorded their first operating profit. How much did they earn? The division is not saying, though one spokesman described the amount as "more than a pittance."
Despite that financial improvement, not everyone buys the Saturn success story. Analysts note the subcompact market is notoriously fickle. And they question whether Saturn can survive without expanding its product lineup - now limited to a mix of coupes, sedans and wagons built off a single chassis. But Saturn officials insist they have no plans to offer a larger car. Saturn has been "cannibalizing," or stealing sales, from its sister Chevrolet division. "I know it's supposed to take away import buyers,"
says Detroit Chevy dealer Joe Lunghamer, but "Saturn has really taken away from Chevrolet."
Expanding the Saturn lineup, analysts caution, could eat into other GM divisions. But while Saturn may face some problems developing a long-range strategy, it faces an enviable short-term problem. Even after adding a third production shift at Spring Hill, production capacity is limited to 300,000 units a year, while some company executives say demand could top 500,000.