Saturn Corporation History

Address:

Wholly Owned Subsidiary of General Motors Corporation
Incorporated: 1983
Employees: 6,904
Sales: $750 million
SICs: 3711 Motor Vehicles & Car Bodies

Company Perspectives:

Saturn's mission is to market vehicles developed and manufactured in the U.S. that are world leaders in quality, cost, and customer satisfaction through the integration of people, technology, and business systems and to transfer knowledge, technology, and experience throughout General Motors.

Company History:

Saturn Corporation grew out of a project begun in 1982 within General Motors Corp. to explore the potential for building a small car of superior quality and value as efficiently as possible, combining the most advanced technology with the newest approaches to management. Saturn realized its goal by producing a car ranked behind only the Lexus and the Infiniti (imported luxury cars produced by Toyota and Nissan) in the 1992 J. D. Power & Associates customer satisfaction survey. Saturn is regarded as more than simply a successful product, however; the company is seen as nothing less than the embodiment of GM's vision of modern corporate ideals.

Saturn was the product of an extraordinary effort within GM to create a company from scratch, without any preconceived notions and combining the most advanced techniques and ideas in all areas. From community and employee involvment in decision making, to environmentally responsible plant design, to dealers trained to avoid the high-pressure sales techniques typical of traditional car salesmen, Saturn has sought to embody a 1990s model of corporate enlightenment. Recognized for its innovations in product design and production methodologies, the company has been the recipient of a great deal of positive publicity. At the same time, however, critics note that its accomplishments have been achieved slowly and at great expense.

Industry Climate Prompts the Birth of Saturn

Saturn grew out of a particular climate within the car industry. Traditionally, the "Big Three" automakers (General Motors, Ford, and Chrysler) had built large cars, emphasizing features and comfort. The industry began to change in the 1950s when foreign car makers (notably Renault and Volkswagen) offered American consumers smaller cars at lower prices. Imports had claimed a 10.1 percent market share by 1959, but they were pushed back to a 4.8 percent share in 1962 after the introduction of the Corvair (GM), the Valiant (Chrysler), and the Falcon (Ford) in 1960.

By the late 1960s, the Big Three began to be challenged by Japanese car manufacturers. The Vega was GM's answer to the challenge. In 1968 GM announced that it would build the Vega from scratch rather than redesign another GM car. The finished product, introduced in 1970, proved disappointing. Vegas were prone to rust, and their aluminum engines warped. The Chevette, GM's more successful small car introduced in 1975, was nearing the end of its 10-year product cycle when GM began to work on a replacement, code-named the S car. In 1981 GM determined that the S car could be built much less expensively by Isuzu (GM had bought 34.2 percent of Isuzu in 1971). Its next small car (the Chevrolet Spectrum) was built in Japan. This series of events confirmed in some people's minds the suspicion that U.S. automakers couldn't produce small cars competitively. As smaller cars were widely believed to represent the future direction of the industry, the episode called into question the likelihood of the long-term survival of the Big Three. To address this concern, Ford initiated the "Alpha project" and Chrysler began work on "Concept 90."

At GM an internal project to build an affordable, high-quality, small car to compete with the imports was approved in May 1982 by GM Vice-Chairman Howard Kehrl in conjunction with Alex Mair and Robert Eaton, vice-presidents in charge of design and engineering. On June 15 Alex Mair sat down with engineers Joe Joseph and Tom Ankeny to sketch out the plan. By July the project had been dubbed "Saturn," a reference to the Saturn rocket that propelled the American astronauts to the moon during the space race with the Soviet Union.

The project enjoyed strong sponsorship from the highest ranks of the company. In keeping with the emphasis on consensus throughout Saturn, no one in particular is considered the project's founding father. In the words of then-GM Chief Roger Smith, "I don't know who is the father of Saturn around here. I think all of us are promoting it and pushing it. I've been hot for it but I'm not going to tell you that I started it, because that wouldn't be true."

Although the project was to be kept confidential, press leaks began in early 1983. As cooperation with the UAW was vital to the success of the project, GM had begun behind-the-scenes discussions with Donald Ephlin, the UAW manager for GM. By October, a joint GM-UAW Study Center was agreed upon.

Motivated in part by claims that the company was turning its back on the United States by building cars in Japan, on November 3, 1983, GM announced a new operating unit, the wholly owned Saturn Corporation, with an initial capitalization of $150 million. It would be the first nameplate added to the General Motors ranks since Chevrolet in 1918. Saturn would incorporate the latest technology available. The operations were to be completely computerized, with robots utilized to reduce direct labor costs, and flexible manufacturing techniques and just-in-time inventory systems introduced.

The importance of the project is evident in the wording of its announcement. Chairman Roger Smith announced Saturn as "the key to GM's long-term competitiveness, survival, and success as a domestic producer.... We expect it to be a learning laboratory," he said. "We also expect that what we learn with Saturn will spread throughout GM." He described Saturn as the key to improving every GM plant and product.

Key staff members recognized for bringing the project to this point included Alex Mair of the Technical Staffs Group, Bob Eaton of Advanced Product & Manufacturing Engineering, Irv Rybicki of the Design Staff, and UAW leaders Don Ephlin and Joe Molotke. Executives appointed to take the company forward included the former head of the Oldsmobile Division, Joseph Sanchez, as president; the former executive director of the Saturn project, Reid Rundell, as executive vice-president for strategic planning; John Middlebrook as vice-president for sales, service, and marketing; Tom Manoff as vice-president for finance; Jay Wetzel as vice-president for engineering; and Guy Briggs as vice-president for manufacturing operations. When Sanchez died suddenly on January 26th, William E. Hoglund was appointed president. Hoglund served until Richard G. "Skip" LeFauve succeeded him on February 3, 1986.

The 1980s: Saturn is Born

The company was launched. On December 19, 1983, a joint GM-UAW Study Center was announced. The following February, 99 people ("the Group of 99") were designated to identify key founding principles for Saturn and to search the world for the best ideas in all areas. The group consisted of a functional cross-section of people, including plant managers, superintendents, union committee members, production workers, and skilled tradesmen, as well as UAW and GM staff from 41 UAW locals and 55 GM plants.

The group split into seven functional teams to explore stamping; metal fabrication and body work; paint and corrosion; trim and hardware; heating, ventilation, and air conditioning; and powertrain and chassis. In all, the Group of 99 visited 49 GM plants and 60 other companies around the world. They made 170 contacts, traveled two million miles, and put in 50,000 hours of effort.

The group's findings were presented in April 1984. The keys to success identified included ownership by all employees, the assumption of responsibility by all, equality and trust among employees, the elimination of barriers to doing a good job, giving staff the authority to do their jobs, and the existence of common goals. Specific recommendations included the use of a conflict resolution process that had been developed by the group and the formation of consensus-driven partnerships within work teams as well as between the union and company management.

The search for a plant location began immediately after the company was announced. Two days later, Illinois Governor James Thompson became the first to visit GM, advocating a site in his state. By the end of the search process, 24 governors had paid visits to GM and 38 states had expressed interest. Donald Avenson, the Speaker of Iowa's House of Representatives, offered to pay half of the first year's wages for workers ($140 million) if Saturn settled in Iowa. Spring Hill, Tennessee, was confirmed as the plant site on July 30, 1985, and construction began in May 1986.

The plant is a mile long and half mile wide, totalling four million square feet and consisting of four functional buildings: powertrain (engine and transmission systems), body systems (frames, exterior panels), vehicle interior systems (interior trim), and vehicle systems (final assembly). The facilities' core team, which designed the layout, included employees at all levels. The team considered unique lighting requirements in different areas; placed restrooms and cafeterias conveniently; and designed a sophisticated roadway that separates truck traffic from pedestrians, decentralizes loading docks so materials arrive where they are needed, and ensures that no one walks more than five minutes from parking lot to work.

As controlling labor costs was crucial to competing with the imports on a cost basis, cooperation with the UAW was an important factor. During the 1980s GM had suffered losses and had laid off 170,000 UAW workers. The competitive environment spurred both sides to work together on improving the prospects for American car manufacturing. Al Warren, vice-president of GM's Industrial Relations staff, and Donald Ephlin, UAW vice-president and director for the General Motors Department, were instrumental in creating a strong bond between Saturn and the UAW.

On July 26, 1985, the UAW executive board approved a unique labor agreement for Saturn. It reduced the number of job classifications, allowed unprecedented flexibility in job content, eliminated work rules, and set pay rates at 80 percent of the base rate at other GM plants with the difference made up in performance incentives. All Saturn workers were salaried and participated in a "risk-reward" system in which they lost 20 percent of their pay if the company did not reach common goals (e.g., sales goals), but earned proportional bonuses if goals were exceeded. Each team managed its own budget, inventory, and hiring.

Training was an important part of Saturn's human resource strategy. Workers spent between 250 and 750 hours in training to become "job-ready." On the job, they spent a minimum of five percent of each year in training. Workers were acclimated to Saturn's philosophy through core courses on conflict management, consensus decision making, and team dynamics. They also received specialized technical training on machinery, parts quality, and working with vendors. The training program sought to promote teamwork, self-direction, initiative, and responsibility. In 1992, Saturn's success in managing human resources could be measured by the lowest absentee rate in the industry: absenteeism at Saturn was 2.5 percent, a far cry from the 14 percent at other GM plants.

As other elements of the company were being developed, product development staff were working on the cars. The first demonstration vehicle was completed on September 15, 1984. Although Saturn was a "no year" project (it had no set launch date), GM chairman Roger Smith was determined to begin production before he retired. He drove the first car off the production line on July 30, 1990, one day before he retired and turned the reins over to Robert Stempel.

The first truckload of Saturns was sent to dealers in California on October 11, 1990. By November the company garnered several awards, including the Popular Science "1990 Best of What's New in Automobiles" and an award from the Society of Plastics Engineers for its thermoplastic door panel. In June 1992 the first exports went to Taiwan. Annual production quickly reached 240,000 units, and buyers were lined up on waiting lists, but the company was still losing money. By 1993 Saturn expected to raise production to 320,000, allowing the company to turn its first profit; the product line included seven models of sedans, coupes, and wagons.

In developing parts and manufacturing processes, Saturn employed Product Development Teams (PDTs) consisting of manufacturing engineers, finance staff, materials managers, quality engineers, and UAW technicians. The teams decided what materials to stock and evaluated prospective suppliers for quality, price, and efficient organization.

In keeping with the "complete job-focus" philosophy, a part was manufactured from start to finish in one place. Ergonomics was another important consideration. Equipment, which was "low-tech and people-oriented," was chosen by its users and frequently adjusted to individuals. Whereas workers must crawl inside the vehicle to work on the cockpit of most cars, Saturn cockpits were assembled in a fixture that can be rotated for the comfort of the individual worker. A skillet system allowed workers to ride on a moving platform with the car as it moved down the assembly line. While the basic system was copied from GM's Opel facility in Germany, Saturn widened the platform and turned the cars sideways, saving 40 percent in floor space.

In the engine and transmission area, lost-foam casting was used on a large scale for the first time, providing casting precision, flexibility, material savings, minimal tool wear, and reduced machining. In making trim, plastic colors were mixed at the injection molding machine, reducing change-over time and costs. Other innovative production methods included an environmentally sound waterborne paint process and a method of testing transmissions with air rather than oil.

Service and Marketing for the 1990s

Marketing was another central issue at Saturn. The first marketing customer clinic was held in San Francisco in March 1985, five years before production began. The car itself was designed to be adaptable to changing consumer preferences. Whereas older cars depend on exterior panels for structural strength, Saturns are structurally based on a strong "space frame" to which the exterior "skin" is attached, allowing for quick style changes. Saturn's marketing philosophy was concerned with bringing in "plus business" (non-GM buyers). Based upon the profile of imported car buyers, the targeted Saturn consumer would be an average of 38 years old, earning an average of $51,000 annually. A large percentage would live on the West Coast and 50 percent would be college graduates.

The Saturn Marketing Planning Team incorporated the ideas of 16 dealers representing 25 manufacturers. Led by Donald Hudler, the team studied distribution methods of 30 major U.S. corporations and came up with Saturn's Market Area Approach (MAA), which was announced on May 26, 1987. MAA set up 300 "territories" to be handled by individual franchised dealers.

Saturn sought the consistency of service lacking in the GM dealer network. In early 1989 dealers were invited to apply for franchises. Saturn dealers were trained in low-pressure sales and were encouraged to pay salaries rather than commissions. The strong demand for the car, coupled with significant dealership control over territory, enabled Saturn dealers to average twice the unit sales volume of other car dealerships. In addition, the August 3, 1992, Business Week noted that a 17 percent gross margin was built into the "no-haggle" sticker price (while other cars averaged 12 percent).

An important step in defining Saturn's marketing strategy was the selection of an advertising agency. Fifty agencies had applied for consideration by a review panel composed of two Saturn executives, two retailers, and a UAW representative, but the agency chosen was not among them. Thomas Shafer, Director of Marketing Services, felt that it was important to consider West Coast agencies since the small car market was most competitive there. As a result, the Hal Riney & Partners agency was named as Saturn's "communications partner" on May 24, 1988. Riney set about creating a "charismatic brand." He felt strongly that model names would detract from the Saturn name and insisted that the cars simply be called "Saturns," with numbers distinguishing various models. Dealerships would be called "Saturn of x" and colors would be "red" rather than the more pretentious "raspberry red." Saturn advertising was designed to be emotionally driven, with a focus on the human element rather than the product. In February 1989 the first print ad appeared, even though cars would not be available for more than a year.

In addition to external marketing work, Riney assisted the new company with internal communications. In April 1989 Riney produced "Spring, in Spring Hill," a documentary explaining the company to employees, suppliers, and the press. It was later aired as an infomercial. In the film, team members explained what the project meant to them. In the words of a Riney executive, "We wanted to get people rooting for Saturn, the company."

Saturn lost $800,000 in 1990 with calendar year sales of 1,881 units. 1991 calendar year sales were 74,493 units, and 1992 sales reached 196,126 units by December 31, with a substantial number of additional units back-ordered. In the 1992 model year Saturn earned a 2.8 percent market share. It was estimated that the company needed to sell 300,000 cars per year to make a profit. Increasing capacity significantly would require further investment in new facilities or the retooling of an existing plant. Building new capacity was problematic as GM continued to close old plants; retooling, however, also presented problems, as duplication of the innovations in the Spring Hill plant was a formidable task. In addition, there were few existing facilities large enough to accommodate the manufacturing of all necessary components at one site, as Saturn did in Spring Hill.

By mid-1992 Saturn cars had 95 percent domestic content and were ranked as the highest-quality American cars, with defect ratings rivaling those of top Honda and Nissan vehicles and customer satisfaction ratings outpaced only by Lexus and Infiniti. On the negative side, the company was far from recouping the undisclosed billions that GM had invested in it and was not operating at full capacity. In addition, an average of 35 hours of labor were required per car, compared to the stated company goal of 20 hours.

In an effort to transfer experience gained at Saturn throughout GM, the company moved several Saturn executives to other divisions. GM President and CEO Jack Smith, who succeeded Robert Stempel in 1992 after the latter's controversial ouster, talked about "Saturnizing" all of GM. Yet, as Donald Ephlin noted, "One of the things GM does very poorly is spread improvements across the system."

In 1993 Saturn was set to sell 200,000 cars, garnering 1.4 percent of the market. Commentators noted that while the cars themselves were not exceptional, the company was truly excelling at advertising and customer satisfaction, giving the Saturn mystique considerable weight. In June 1994, for example 44,000 Saturn owners and their families drove their Saturns to Spring Hill for a three-day "homecoming," a feel-good event in which the relationships between dealer and customers were further cemented. Saturn's sales had fallen, however, from a peak of 25,000 per month the year before to 15,000 per month in 1994. The drop was attributed to several factors: GM, which was short of cash, cut back on Saturn's advertising budget, which was halved; plans to expand the dealer network were put on hold, with 285 dealers serving only about 60 percent of the U.S. market; product enhancements, including a facelift and passenger airbags, were delayed from the 1994 to the 1995 model year; and modifications that would decrease engine noise were delayed until 1996. The car was also facing more formidable competition from domestic rivals, including the Dodge and Plymouth Neon. Michael Bennett, president of UAW Local 1853 in Spring Hill, stated that if Saturn didn't build a second assembly plant soon, the company was doomed to extinction much like the American Motors Corp., which was too small to survive. While the Spring Hill plant was capable of producing 325,000 cars a year, Bennett maintained that Saturn needed 500,000 to make a profit. Profitability was impossible for outsiders to assess, as GM refused to release financial data on the company.

In 1995 Saturn reached two important milestones, as its millionth vehicle rolled off the line after ten years of production. Reports indicated that the company planned to add a larger sedan to its offerings, to be built at a plant in Wilmington, Delaware, that was otherwise scheduled for closing. While this was good news for the line, other GM divisions were concerned that expansion by Saturn would cannibalize their own sales. By May, sales of the original line were up 17.5 percent for the year, in a segment that was down 14.4 percent overall. However, officials were concerned about the effects of Saturn's limited product line as the company's target market, the baby boom generation, grew older and became interested in trading up. For their part, critics continued to complain about the Saturn's dull styling and engine noise.

Nevertheless, the experiment continued, as Saturn took the battle for small-car dominance to its most formidable competitors' home turf, appointing six distributors in Japan in 1996. Keith Wicks, general director of Saturn Japan, stated, "We are convinced the high quality of Saturn cars, combined with friendly customer treatment and service at our Saturn retailer, will make a difference even for very discerning Japanese consumers." The right-hand drive vehicles were to be available in 10 to 15 showrooms when sales began in 1997. Sales remained strong at home: president Don Hudler stated at mid-year that if the company could produce them, Saturn could sell about 50,000 more cars a year, a number that would generate about $600 million in revenue. In August General Motors confirmed that it would build a mid-size Saturn in Wilmington. The car would be based on the same platform as the Vectra, a European offering from GM.

Noting that the car would be built at an existing GM facility, some observers took the decision as a sign that GM was serious not only about investing in Saturn's success, but also about spreading Saturn's accomplishments beyond Spring Hill, to the rest of the company. Commentator Drew Winter wrote: "From a business standpoint, or even according to Saturn's own mission statement, it probably is too soon to call Saturn an unqualified success. But as sales remain strong, details of a global strategy continue to leak out, and GM's overall customer satisfaction shows marked improvement, it sure doesn't look like a loser."

Saturn Corporation History

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