Road Ahead Might Be Bumpy for Saturn

The carmaker has been successful, but greater output, new models could `cannibalize' other GM divisions

GENERAL Motors Corporation's $5 billion gamble may finally be paying off, but even as its Saturn Corporation subsidiary posts its first profit, there are signs that the consumer-friendly carmaker could face some serious threats.

When GM announced the Saturn project in 1984, its goal was to build a car that could compete with the best vehicles from Japan. A decade later, Saturn dealers are taking a lot of Hondas and Toyotas as trade-ins. Analysts say Saturn's real draw is its focus on customer satisfaction.

``I don't buy cars because of how they look,'' explains Maureen Mostly of Troy, Mich. ``That's not my primary concern. I bought my Saturn because it was affordable, had a good warranty record, and because of how my dealer treated me.''

In its first year on the market, Saturn sold barely 50,000 cars. But last year that number surged to nearly 300,000. Saturn's first-ever monthly profit came in May 1993.

``And we have been profitable every month thereafter ... with the exception of July, when we had a two-week shutdown for model changeover,'' says John Manoff, Saturn's finance director.

``Saturn will exceed our breakeven goal in 1993 and will realize a sizable operating profit for the calendar year,'' he adds.

Expansion debate

Despite the good news, Saturn's long-term strategy is running into opposition - both inside and outside GM.

GM's corporate strategy board has given Saturn the go-ahead to replace its existing coupe, sedan, and wagon models, all of which are based on the same subcompact platform. But the board has rejected plans for Saturn to become more upscale - to grow with its young customers as they need larger cars. Saturn possibly will add more models, but GM's top executives remain deeply divided over the idea. They are concerned that Saturn would ``cannibalize'' - steal sales away from - other GM divisions.

Another fierce debate centers around Saturn's plan to add a second ``module,'' or factory. The first plant, in Spring Hill, Tenn., is already running at capacity -around 300,000 units a year - and Saturn officials insist they need more.

That once seemed a sure bet, but now GM Executive Vice President William Hoglund says ``they've got to come in and fight for capital just like any other GM division, and that's causing them a little difficulty.''

Saturn is struggling to put together a business plan that will justify another plant, but it must overcome a number of obstacles.

Saturn's labor contract is more flexible than the agreement covering workers at other GM plants, which helps Saturn hold down labor costs. Ten percent of each worker's salary is ``at risk,'' meaning it does not get paid if production targets are not met, and workers do not get overtime. They can qualify for performance bonuses, as much as $6,000 apiece last year. But since most Saturn workers are putting in six-day weeks, that is not as much as they might earn in overtime building the popular Chevrolet Cavalier at the GM plant building.

Labor contract in flux

``There's a problem at Saturn,'' says Stephen Yokich, the No. 2 man at the United Autoworkers Union, who makes it clear that he does not want to continue the unique Saturn contract. But without that agreement, it would be harder for Saturn to turn a profit. And if and when a second Saturn module is approved, Mr. Yokich says he would prefer to see it be placed in one of the many GM plants the automaker had planned to shut down.

``The game is changing for Saturn,'' says auto analyst Susan Jacobs of Jacobs Automotive, an automotive research and consulting firm in Rutherford, N.J.

Another problem facing Saturn is the arrival of some serious new competition.

``Now there [are] two choices, and the styling appeal of Chrysler's [subcompact] Neon and the appeal of the interiors will give Saturn a challenge they haven't had before,'' Ms. Jacobs says, adding that Neon will have a price advantage. A base Neon sedan is priced at $8,975, compared with $9,995 for the lowest-priced Saturn SL-1 sedan.

Saturn sales have already begun to slow a bit. A year ago, dealers could barely keep a car in stock. Today, they have a 75-day inventory, a bit above the industry norm. But as the division adds new dealers this year, executives insist that sales will pick back up.

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