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What GM can learn from the rise and fall of Saturn; Lessons from GM’s “moonshot” could help the automaker’s leadership in the current crisis

What GM can learn from the rise and fall of Saturn

Doron Levin

@FortuneMagazine

JUNE 13, 2014, 11:13 AM EDT

Lessons from GM’s “moonshot” could help the automaker’s leadership in the current crisis.

Saturn Vues, Outlooks, Auras and Skys still motor on the American road, as do plastic-body Saturn SC sedans. The discontinued models of a discontinued Saturn brand are rolling, bittersweet reminders of an earlier – and ultimately, unsuccessful – attempt by General Motors to reinvent itself.

Saturn, introduced 30 years ago, was intended to be more than a new GM  GM 0.31%  brand. The name heralded advanced manufacturing techniques, a revolutionary labor agreement with the United Auto Workers union and a no-haggle style of retailing – GM’s answer to Honda and Toyota.

Reinvention will be high on GM’s agenda next week as the embattled company faces a new round of scrutiny in Congress.  Five years after its bankruptcy and government-led financial rescue, GM finds itself in the throes of massive recalls and questions about the attention of its engineers and lawyers to safety. The automaker’s chief executive, Mary Barra, has been summoned to answer questions about GM’s internal probe into why it took more than a decade to report possibly deadly product defects.  A Saturn Ion, equipped with a substandard ignition, is one of the recalled models.

The GM division envisioned to embody innovation and imagination perished in the automaker’s 2009 bankruptcy. Gone but not forgotten, Saturn made news this week with the passing of its first president, the affable and well regarded GM executive, Bill Hoglund, 79.  Hoglund died on June 9.

Hoglund was tapped for the job in 1985 by Roger B. Smith, GM’s chairman. Smith was looking for an answer to the rising tide of imported cars from Japan. A few months earlier, he and president Jim McDonald unveiled the Saturn project, kindling hopes that GM could meet the competitive challenge and forestall the shutdown of GM plants and massive job loss.

Amid much hoopla, Smith and UAW president Owen Bieber drove the first Saturn off the line at a new factory in Spring Hill, Tenn., in 1990.  The automaker engaged legendary adman, Hal Riney, whose slogans had helped elect Ronald Reagan president; Riney’s pitch was: “A different kind of company, a different kind of car.”  Many owners seemed to love their Saturns, though total sales never reached GM’s optimistic projections.

Following the recession of the early 1990s, GM’s financial problems mounted as the capital available for Saturn, along with other GM brands, was diminished.  The UAW bridled at the special terms of Saturn’s labor agreement, eventually dropping provisions meant to promote teamwork and cooperation among line workers and managers.

In the runup to bankruptcy, GM tried to sell Saturn.  One of the suitors was Roger Penske’s Penske Automotive Group. But the attempt failed when Penske was unable to secure a manufacturing commitment to build the vehicles he intended to sell under the Saturn brand.  He had been discussing the possibility with Renault.

Roger Smith heralded Saturn as a “moonshot,” a visionary project to change GM’s fortunes. His corporate heir, Mary Barra, has taken a more down-to-earth approach, vowing to change the company’s culture by reordering its priorities, among them, the attention to the safety of customers.

The events of the past five years are ones that Barra and many in GM would prefer to forget or at least put behind them.  Perhaps if Saturn had benefited from a bit more time and capital, GM might have avoided its insolvency and enjoyed a different kind of future.

 

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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