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Saturn: Still Tiny, but Bleeding Like a Monster


Last fall, General Motors (GM) Corp.'s Saturn Div. had something to brag about. After a seven-year slide, sales were finally turning up thanks to the modest success of the new Vue sport-utility vehicle. Saturn execs hoped for an encore when their all-new Ion sedan replaced the aging S-Series compact in dealer showrooms in November.

Then the good news ran out. The new Ion is no hit, while sales for the updated L-Series midsize car were down 30% in April alone. Worse, the tiny Saturn unit continues to burn through money: Insiders tell BusinessWeek the long-suffering division -- it has never made money in its 10-year existence -- could lose $1 billion in 2003. That's a lot of cash for a minor subsidiary of a giant that is expected to earn just $2.8 billion this year.

So, will Saturn go the way of Oldsmobile? "That is out of the question," says Robert A. Lutz, GM's vice-chairman for product development. Convinced that Saturn's consumer-friendly image still has lots of gas, he plans to pour even more money into new models in the hopes of adding pizzazz to the lineup. But the first new Saturn model won't appear until 2005 -- and it will be a crossover SUV shared with other divisions. Moreover, Lutz may put Saturn styling on other GM pickups and SUVs. That means the division GM once called "a different kind of company" could lose its distinctiveness. Warns Art Spinella, president of automotive consultant CNW Marketing Research Inc.: "They'll turn Saturn into 'Chevy, too."'

It's all quite a reversal. When GM launched Saturn in 1990, it created a plant and a workforce modeled on many of the best practices used by Japanese auto makers. The unit was supposed to become a template for the rest of the company. And Saturn did stand out with its modern-looking, quality cars, no-haggle sales pitch, and folksy advertising. Folks who normally bought imports flocked to the Saturn. In fact, to this day, 70% of Saturn buyers trade in a foreign car -- by far the highest rate of import owners to defect to any GM brand. That, says Jill Lajdziak, Saturn's vice-president for sales and marketing, remains the brand's "reason for being."

But GM has long struggled to really capitalize on that popularity. For nine years, Saturn made only a compact car, so buyers who outgrew it had nowhere to turn. Moreover, margins are always thin on small cars, and Saturn's unique approach saddled it with high marketing and production costs.

By the mid-'90s, Saturn execs knew they needed to shift gears. Hoping to boost revenues and profits by selling larger, pricier vehicles, the division poured hundreds of millions of dollars into developing the L-Series, Vue, and Ion -- a triple whammy that was supposed to drive Saturn back into the fast lane.

Too bad the new cars flopped. The L-series, launched in 2000 to take on Toyota (TM) Motor Corp.'s Camry and Honda (HM) Motor Co.'s Accord, is widely considered stylistically boring. Its performance is also unremarkable. Even with rebates of up to $3,000 on an $18,000 car, Saturn sold just 81,000 last year, less than half the projected number.

The Ion isn't doing so well, either. Surveys show that consumers don't like the car's cheap plastic interior and are turned off by the quirky styling. After just seven months on the market, inventories now stand at almost 100 days worth of cars -- 35% more than the industry average.

All of this is cutting deeply into Saturn's bottom line. Thanks to the L-Series' poor showing, Saturn has cut production at its factory in Wilmington, Del., to less than half its capacity -- but Saturn must still pay 1,450 furloughed workers. Add development costs and rebates, and it's easy to see why Saturn is hurting financially.

That's one key reason Lutz may turn some Chevrolets into Saturns: to give the unit some more profitable vehicles. Lajdziak says Saturn will also cut costs by building vehicles using parts from other GM models -- stylistic differences, she says, will keep the brands distinct. Although such a move could dilute the Saturn image, GM has little choice. The real question is whether people will by a car that's a Saturn in name only. By David Welch in Detroit


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