Saturn Output Still Too Small
To meet booming demand, carmaker needs capital - which parent GM may not provide
TYPICALLY auto companies would be delighted to have more customers than cars, especially in a stagnating economy. But for General Motors Corporation's Saturn division, there's a little bit too much of this good news to handle.
Saturn has been buoyed by the "buy American" sentiment of many consumers, good word of mouth, and favorable reviews, auto analysts say. Last month Saturn was named the "best domestic carline" in the Customer Satisfaction Index put out by J. D. Power & Associates, the California market research firm.
After its slow start-up in 1990, the division is still struggling to pick up the pace at its Spring Hill, Tenn., assembly plant. Production is only now nearing 1,000 units a day. This is barely enough to meet dealer demand, the highest per outlet of any brand sold in the United States.
Moreover, under Saturn's unique agreement, dealers can set up as many outlets as they want within the broad geographic boundaries of their franchise. Twenty-six Saturn dealers already operate multiple showrooms.
"We don't want to have more stores than we can provide for," says Saturn president Richard LeFauve. "So now we're trying to hold them back" on opening new showrooms until there's enough capacity.
Saturn is looking at a number of ways to increase volume, Mr. LeFauve says. The division will likely add a third shift later this year. Saturn operates two 10-hour shifts each day, four days a week - actually five days with overtime. But that has not been enough. Dealers run out of cars
Tom Delke was one of dozens of dealers nationwide who actually ran out of cars when the plant briefly shut down last month to switch over to 1993 models.
"The demand has been strong right from the start," says Mr. Delke, who runs Saturn North in Clarkston, Mich.
By the middle of 1993 Saturn's plant should be reaching its capacity of about 300,000 units a year with maximum overtime.
But if demand remains strong, that number will still fall short, so the division is rethinking its original plans, LeFauve says.
When Saturn was first announced back in 1985, it was to have two assembly modules at the Spring Hill site with a combined production capacity to at least 500,000 units a year.
The second module was put on indefinite hold because of concerns about the project's escalating costs. Land acquisition and construction of the first module cost about $1.9 billion. GM has spent at least another $1 billion on design, engineering, and planning connected with Saturn.
Considering GM's current financial crisis, analysts question whether GM will provide the new capital Saturn would need for this major expansion. To bolster their case, Saturn officials are promising that the division will turn a profit, they won't say when.
"I would not sustain Saturn if we were not profitable. Saturn is not a grand experiment," says LeFauve. Others question that assumption, and wonder whether General Motors will ever be able to recover its full $3 billion investment.
But clearly Saturn has been making waves.
"It doesn't have the negative baggage" associated with other GM products, notes George Borst, director of strategic planning for Toyota Motor Sales USA.
Delke and other dealers say the percentage of customers trading in imports to buy Saturns is higher than they expected. Stealing sales from Chevy
But Saturn also appears to be "cannibalizing" sales from other GM divisions. John Casesa, an auto analyst with Wertheim Schroder investment house, says he believes "half their growth comes from Chevrolet."
Another problem for Saturn is the lack of higher-end models for its customers to "trade up" to when they buy new cars. The current crop of Saturn sedans and coupes are essentially entry-level subcompacts.
LeFauve says Saturn will not add a second, larger vehicle platform aimed at Honda's Accord.
"A lot of people think we should, but I think the secret of success for Saturn is to focus on what we do best," he says.
But other company sources say the division may still turn out a convertible, a sports or sporty car, or even a competitor with Infiniti's low-end luxury sedan, the G20. But these would likely be based on compact chassis.