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GM Brands: Adieu Saturn ... Pontiac Next?

Micheline Maynard, The New York Times
Wednesday, 18 Feb 2009 | 8:15 AM ET

The brand that was once hailed as an important part of the future of General Motors now will be part of its past.

2008 Saturn Aura
2008 Saturn Aura

G.M. said Tuesday that it would phase out its Saturn brand by 2012. It does not plan to develop any more new vehicles for Saturn, which began 19 years ago as an effort to attract owners of small Japanese cars.

G.M. also said it was considering its options for the Pontiac division. The Pontiac name, part of the car business since 1932, could remain on some models, but may no longer be a separate division. G.M. said Pontiac would be a “focused brand” with fewer models.

The disclosures by G.M., contained in a viability plan submitted to the government, means that G.M. plans to cut its brands in half, to four: Chevrolet, Cadillac, Buick and GMC.

It said last fall that it would try to find buyers for Hummer and Saab. On Tuesday, it said it would decide on Hummer’s fate by March 31.

But is four the right number?

After all, most of its big competitors, including Toyota, Honda and Chrysler, build their businesses around three brands or fewer in the United States. Ford is moving to shed its foreign brands and plans to focus primarily on three — Ford, Lincoln and Mercury.

“A volume brand and a premium brand can get the job done. Toyota has proven that,” said Karl Brauer, editor in chief of Edmunds.com, a Web site that offers car-buying advice. “Cadillac, Chevy, done.”

The more brands a carmaker has, the more it must spread money around to develop vehicles and market them.

As a result, “every brand suffers,” said A. Andrew Shapiro, a managing partner with the Casesa Shapiro Group. “No particular brand or brands can achieve the share of voice that they need.”

Its extensive brand lineup has long been G.M.’s primary weapon. Founded in 1908 by William C. Durant, who brought together a collection of car companies, G.M. made the concept of “a car for every purse and purpose” its strategy during the 1920s for retaining buyers from their first car to their last.

Brands were a crucial element in G.M.’s effort to thwart Ford, then the country’s biggest car company, whose founder joked that buyers could have any color they wanted, as long as it was black.

G.M.’s strategy paid off during its best years, when it controlled more than half the American

car market. But it held only 22 percent of United States auto sales last year, with more than half of its share coming from a single division, Chevrolet.

G.M. found out last decade just how expensive it could be to unwind a brand. It spent more than $1 billion to buy out dealers at Oldsmobile, which built its last cars in 2004.

Rick Wagoner, G.M.’s chief executive, said the automaker had set aside money to buy out dealers, but declined to specify a figure. “We have reserves in our plan to facilitate that,” he said.

He cited the economic downturn as the reason G.M. was phasing out Saturn. “Frankly, the opportunity for any brand, and for our volume as a whole, just looks radically different,” he said. “It is unfortunate and it seems like a cruel twist of fate at a time when Saturn is loaded up with a fantastic product portfolio.”

In a letter sent Tuesday to Saturn dealers, G.M. said it would entertain a plan from Saturn dealers or other investors for a spinoff of the division to keep it operating. It said it would provide information to potential investors.

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But it warned a spinoff would be “a difficult and complex task, and some of the issues that must be resolved include product sourcing, capitalization and financing issues,” G.M. said in the letter signed by Mark LeNeve, a G.M. vice president for North American sales, and Jill Lajdziak, the general manager of Saturn.

When Saturn was started in 1990, as a “different kind of car, a different kind of car company” aimed at owners of small Hondas and Toyotas, its small cars were immediate hits. But G.M. executives decided in the mid-1990s that they needed to support G.M.’s other brands over Saturn, which by then had cost $5 billion.

G.M. did not add any new vehicles to the Saturn lineup for five years, despite pleas from dealers for bigger vehicles. Earlier this decade, G.M. decided to start selling vehicles from its Opel division, with some design changes, as Saturns in the United States.

Saturn sold 188,004 vehicles in 2008, down 21.7 percent from the previous year. Its best-selling vehicle was the Saturn Vue, a small sport utility vehicle.

Strict franchise laws protect dealers across the country from seeing their operations shut down without advance notice.

G.M. dealers said they were led to believe that the company was committed to the division.

“G.M. is picking on Saturn,” said Sherrill Freeborough, who owns Saturn dealerships in Grand Ledge and Okemos, Mich. “I want G.M. to be successful but I don’t think that always happens the other way around.”

In 1992, when G.M. began discussing the end of Oldsmobile, the division sold 412,000 vehicles. Except for Chevrolet, none of G.M.’s current brands sold that many vehicles last year.

Mr. Shapiro, the analyst, said G.M. should have rethought its divisions in the 1980s, when a number of new brands appeared in the United States, including Acura, Lexus and Infiniti, the Japanese luxury brands, and the Korean makers Hyundai and Kia.

“There were always good short-term reasons for not doing something,” Mr. Shapiro said.

Ed Dena, a Pontiac dealer in Dinuba, Calif., said he would eventually have to focus on his other G.M. brands, including Chevrolet, Buick and GMC. “Of course we’re sad because Pontiac is an icon,” he said. “But right now, in this industry, nothing is a shock anymore.”

— Mary M. Chapman contributed reporting.

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