DETROIT (Dec. 8, 2008) — As General Motors Corp. executives weigh the future of the disappointing Saturn division, GM is not allocating new money toward future Saturn products, according to a source familiar with GM's budget.
In a plan submitted to Congress last week, GM said it would "explore alternatives" for the Saturn brand, which has "performed below expectations."
GM's plan says the company will focus "substantially all of its product development and marketing resources" to support its Chevrolet, Cadillac, Buick and GMC brands.
Saturn's next scheduled substantial new product change is a freshening of the Aura sedan in 2010.
GM executives have been disappointed with Saturn's weak sales in light of its strong new vehicle lineup. But although GM isn't sure what to do with the brand, GM is not ready to give up, insists Mark LaNeve, GM vice president of North American vehicle sales, service and marketing in an interview with Automotive News, a sister publication of Rubber & Plastics News.
Saturn can't be sold, and closing the division could cost cash-strapped GM more than $1 billion in dealer buyouts alone.
Saturn's Franchise Operations Team — a council of eight dealers — will meet with Saturn and other executives Dec. 11 and Dec. 12, in Detroit to discuss how to make the brand profitable, a Saturn spokesman said.
Saturn declined to make General Manager Jill Lajdziak available for this story.
"Saturn has a product program, both current and future, that is currently in our plans," LaNeve says. "But a lot of what is in our plans is in a state of flux right now given the state of the economy and everything."
GM hopes to conceive a new business model to make the brand profitable, LaNeve says. Saturn is not a candidate for sale because it has no dedicated manufacturing or engineering facilities apart from GM, according to another source.
And if GM terminated the brand like it did Oldsmobile in 2000, state franchise laws would protect the 211 dealers who own 425 Saturn dealerships.
Dealer George Nahas has been through the brand-closing trauma before. Nahas, owner of two Saturn stores in Alabama and Florida, owned an Oldsmobile dealership in 2000 when GM killed the brand. He says GM will have to pay off Saturn dealers if it wants to drop the brand.
"If they want to get rid of me, I can show them how," he says. "I used some of that Oldsmobile money to get a Saturn franchise, and I traded the devil for the witch."
Nahas adds that GM may already have damaged Saturn: "When the public hears something like this, their tendency is to not come into your showrooms. (GM) needs to tell us what they are going to do here posthaste!"
Factor a Saturn death in with GM's plan to cut its total dealer count from the current 6,450 to 4,700 by 2012, and the cost would be billions.
Dealer broker Mark Johnson estimates that GM would have to pay $3 million to $5 million to buy out the average GM dealer. So Saturn's dealer network alone could cost upward of $1 billion to shut down.
At Johnson's projected cost, taking out the 1,750 stores GM-wide could cost more than $5 billion. Many of those closings would come from the endangered Hummer and Saab brands, along with 41 stand-alone Pontiac dealers. GM plans to make Pontiac a "niche" brand within the current Buick-Pontiac-GMC network.
Johnson, president of financial advisory and brokerage firm MD Johnson near Seattle, says his estimate factors in a 40 percent drop in a dealer's real estate values and other financial challenges in laying off dealership employees and closing up shop.
Those figures don't include the possibility of lawsuits from Saturn dealers if GM does terminate that brand, Johnson says.
John Pitre, general manager of Motor City Auto Center in Bakersfield, Calif., says cutting off Saturn product would be legally shaky.
"I think they'd be at risk on every franchise agreement that would expire, on the virtue that they say they're not going to build cars anymore," Pitre says. "State franchise laws would override the right that would allow them to walk away. They're either going to have to sell it or continue to operate."
New business model
Through November, Saturn's sales are down 20.9 percent to 175,434 compared with the year-ago period. Saturn's three cars — the Aura, Astra and Sky — sold a combined 76,191 units through November, while the Chevrolet Impala alone sold 244,692 units.
Since Saturn began production in 1990, it has been "break-even to slightly profitable" only in 1993 when it had just its original small coupe and sedan, says a Saturn spokesman. Saturn's U.S. sales peaked in 1994 at 286,003 units.
GM's appeal for $18 billion in federal loans makes its need for profits from Saturn urgent.
When asked how long GM could afford to wait for Saturn to be profitable before getting rid of it, LaNeve said: "We want to begin repaying the loans in 2011. So we have to work quickly to put a business model in place that we're confident is a plan that will be profitable fast."
Some Saturn dealers sympathize with GM's plight.
Ed Williamson owns three Saturn stores in southern Florida. His store near Miami sold 12 new cars last month, when it normally sells 60 to 70, he says. He'd be sad to see it go, but he also owns Cadillac stores and wants what's best for GM.
"I think they've lost a lot of money with Saturn for a long time," Williamson said. "And so with that plan they sent to Congress, I wasn't too surprised. The big question in everybody's mind is: How are they going to do it?"
Sources inside GM say that's the big question they're asking themselves.