Saturn Racing 60-Day Deadline for Spin-Off

General Motors Corp. has given its Saturn division 60 days to mount a spin-off of the brand, a timetable that has met with optimism among its retailers and skepticism among industry analysts.

Two significant hurdles stand in the way – financing the move and finding a pipeline to future products after GM shuts off the spigot following the ‘11 model year.

Saturn spokesman Steve Janisse tells Ward’s a “price tag” has not been assigned to the brand, but a number of Saturn retailers have volunteered to invest in the venture.

Saturn’s 2008 sales fell 21.7% compared with prior year.

However, with credit markets frozen, it would seem unlikely retailers could swing the deal on their own, and the prospect GM might provide support seems equally dim after it raised its plea for taxpayer funding to upwards of $30 billion from $18 billion.

That leaves foreign auto makers that are looking for a toe-hold in the U.S. market.

For example, if a Chinese auto maker acted quickly, it might be able to build some product into the pipeline before the end of the ‘11 model year and begin exporting its cars to the U.S. under the Saturn brand, says Aaron Bragman, an analyst with IHS Global Insight in Troy, MI.

“But this market already has too many dealers and too many brands,” he says. “And in the end, it may be that Saturn and its dealers come up with a solution GM doesn’t like.”

Saturn General Manager Jill Lajdziak says in a letter this week to the brand’s 400 retailers and 1.5 million customers confirming a potential spin-off of an independent “Saturn Distribution Corp.”

“The goal from a product perspective would be to find future vehicles that match the Saturn brand: fuel-efficient, safe, reliable and affordable,” she writes. “From a retailing perspective, we would build on our core strength of unmatched customer service.

“The same hassle-free experience that is a hallmark of the brand could be taken to even higher levels,” she adds, admitting a spin-off would be “a difficult and complex task,” with tough issues such as product sourcing, capitalization and financing.

Erich Merkle, an independent auto analyst in Grand Rapids, MI, refuses to speculate on who might want a piece of Saturn.

“In this environment, I have no idea,” he says. “The real strength is the distribution network, and (those dealers) are very good. Only Lexus ranks above them in terms of customer satisfaction, and that’s the real travesty of this situation. But tough choices have to be made.”

Merkle agrees Saturn would make an excellent port of entry for a Chinese auto maker. “(The Chinese) don’t have a distribution network here, and Chinese products have a perception problem among Americans. Saturn could go a long way to improving that.”

Despite a slew of new products over the last three years and notable brand equity, GM has been unsuccessful in its strategy to lift Saturn from entry-level to a more premium brand along the lines of Volkswagen in the U.S. The deep U.S. economic recession and sharp sales downturn only have magnified the dilemma.

Saturn sold 188,004 vehicles in 2008, a 21.7% decline from 2007, Ward’s data shows. The brand’s sales peak was in 1994, with 286,000 deliveries, falling far short of the 500,000-unit goal envisioned by former GM Chairman and CEO Roger Smith, who launched the brand.

According to the updated viability plan GM filed Tuesday with the U.S. Treasury Dept. as part of its agreement to receive more taxpayer loans, Saturn has combined with the Saab and Hummer brands to generate an average annual before-tax-loss of $1.1 billion.

Saturn, alone, has contributed about $3 billion in revenue to GM coffers since 2003, compared with $88 billion from Chevrolet, $41 billion from the Buick-Pontiac-GMC channel and $15 billion from Cadillac, the Treasury filing reveals.

“GM has finally come clean with the truth: ‘We’re going to dump it. But if we can get some cash for it, great,’” Global Insight’s Bragman says.

However, Roland Daniels, president of three Saturn stores in Florida, says GM’s action Tuesday was not the outcome he had hoped for. “We have to deal with it and move on. We have to figure out a way to keep going.”

While at least one Saturn dealer already has closed his doors in anticipation of a winding down, others tell Ward’s they will stand pat until a final decision comes from GM.

As it stands today, Saturn appears headed for a cruel fate, less than 20 years after entering the U.S. market with vehicles featuring dent-resistant plastic body panels and the promise to go toe-to-toe with Japanese brands such as Honda and Toyota.

Until recently, the brand operated as a GM subsidiary, not a division, and had its own plant in Spring Hill, TN, with its own union contract. That adds up to a tough pill for dealers to swallow.

“Just when (Saturn) started to get a full portfolio of new product, along comes a recession. So we never really got up a head of steam with new product,” Florida dealer Daniels says. “We have a great distribution network with beautiful product. But I think what hit Saturn, along with a lot of other companies, including other GM brands, was the economy.

“The possibility of a spin-off for our distribution network – that holds a lot of promise,” he adds. “I’m anxious to see what comes out of that. We’ll know more in 60 days.”

Meanwhile, left hanging in the wind along with Saturn, Saab Automobile is expected to file for reorganization as early as this month, which would allow the auto maker to become an independent unit by a GM deadline of Jan. 1.

A third GM brand targeted for jettisoning, Hummer, could be purchased by March 31. GM Chairman and CEO Rick Wagoner said earlier in the week two unnamed parties have expressed interest.

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