Eric Gay/AP

Can the Saturn Be Saved?

April 20, 2009 06:40 AM
by Anne Szustek
Private equity firm Black Oak Partners has made a public bid to take over Saturn, the GM subsidiary established in the 1980s as the auto maker ideal.

Saturn Receives New Proposal

General Motors, the parent company of Saturn and a recipient of $13.4 billion in auto loans, has until June 1 to prove its financial viability as a standalone company. GM has already announced plans to sell its Saab and Hummer lines to raise cash. In February, it said that it planned to cancel its one-time pet project, Saturn, by 2011, failing a better offer.

This week, an offer came via a public bid from an investor group that includes Oklahoma City-based public equity firm Black Oak Partners, which says it would keep the Saturn label and its dealership network.

“We’re looking at a rebirth of the Saturn brand,” John Pappanastos, CEO of EFG Companies, a subsidiary of Black Oak, was quoted as saying by BusinessWeek. “The brand has done a pretty good job of finding consumers who like the no-haggle purchase and a green vehicle.” Under the proposal, Saturn would be acquired by a new firm called Telesto Ventures, that would run Saturn as a distribution line of environmentally friendly vehicles. “For its part,” writes BusinessWeek, “GM said only that Black Oak’s group is just one of several bidders.”
Wrenches in the proverbial chassis: Saturn’s management structure gives dealers voting power in executive decisions, which complicates deals like sell-offs. In addition, the proposal would entail the Saturn line selling foreign-made cars, which would go against the brand’s original raison d’être—or would it?

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Background: “A different kind of company”

In the early 1980s, GM began to think about a car that it would market as being from “a different kind of company.” The product line would specialize in small cars positioned to compete with the Japanese brands that were gaining popularity amid the fallout of the 1979 energy crisis. In July 1982, the project was dubbed “Saturn,” named after the rocket that transported Americans to the moon. Some two and a half years later, Saturn Corp. was founded as a GM subsidiary and in October 1990, Saturn’s first vehicles were rolled out.

Over the next 17 years, accolades for the brand poured in. In January 1994, Saturn posted a profit for 1993. J.D. Power and Associates put Saturn in the top spot in its 2002 Sales Satisfaction Index study. Five years later, the Saturn Aura midsize sedan was named North American Car of the Year at the North American International Auto Show in Detroit.

GM Vice Chairman Bon Lutz is at a loss to understand what went wrong; according to the Detroit Free Press, he told Automotive News that the Saturn’s “sales just never materialized.”

BusinessWeek quips that if the Black Oak deal goes through, “Saturn will literally be what it was designed to be. It’s a retail experience. It will just sell a plethora of brands.”

Historical Context: GM: In with a bang, out with a whimper

On September 16, 1908, William “Billy” Crapo Durant incorporated future automotive manufacturing giant General Motors of New Jersey. Within 12 days of its founding, General Motors issued $12 million in stock. By the time the company was six weeks old, it had acquired both Buick and the Olds Corporation of Lansing, Michigan, by paying stakeholders in those companies with GM stock. With the strategy of “a car for every purse and purpose,” GM sought to take cars beyond a luxury item to an irreplaceable household staple.

By 1935, GM was the largest producer of vehicles in the world and by 1940, it had produced 25 million cars. In 1949, GM president Charles Wilson signed “The Treaty of Detroit,” an agreement with the United Auto Workers that guaranteed long-term benefits.

Fifty years later, some have pointed to that treaty as leading to the auto giant’s decline. By 2008, GM had closed many of its plants, had seen less company valuation than any time in history and faced the reality of selling a minority of the cars on the road today.

Related Topic: GM CEO Rick Wagoner steps down

Wagoner was asked to leave General Motors by the Obama administration on March 29. His departure is part of a substantial change underway in the auto industry.

Wagoner had been working for GM since 1977, and was named CEO in 2000. ABC News reported that according to financial filings, he will receive a $20 million retirement package. The Treasury Department has barred the company from paying severance to him or any other senior executive.

President Obama has stated that even though the White House asked Wagoner to step down, his administration does not want to run GM.

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