Why Saturn Failed

The GM "fighter brand" vehicle was destined for lack of profitability and sustainability

It's doubly depressing to see Saturn make its final bow. Depressing, because it's always hard to watch loyal employees lose their jobs. Depressing, too, because many of the brand's newly written obituaries completely miss the real reasons behind Saturn's demise, and the real damage the brand did to GM.

To understand why Saturn was destined to fail you must travel back to a freezing cold January day in 1985 in Warren, Michigan. It was there that GM Chairman Roger B. Smith proudly announced its first new nameplate in more than half a century. Saturn was conceived as a specific response to the growing threat from the fuel-efficient and affordable cars being launched into America from Japan. In other words, Saturn is a classic example of a fighter brand—a brand created to take on low-priced competitors. Smith admitted as much at the launch event, telling journalists: "In Saturn we have GM's answer—the American answer—to the Japanese challenge."

The first Saturns hit the market in 1990 and quickly achieved some of the highest repurchase rates and customer satisfaction scores in the industry. By 1996, orders actually exceeded Saturn's production capacity, and the brand's fighting prowess was further confirmed when dealer research revealed that 50% of these orders were from individuals who would otherwise have bought a Japanese import. Many commentators look back on this period of Saturn's operations and wistfully recount it as evidence of the brand's once great success.

Only one snag: like many fighter brands designed to take on low-priced competitors, Saturn was wildly unprofitable from the outset and totally unsustainable as a result. Its initial setup costs of $5 billion were soon extended as Saturn's sub-compact prices failed to cover the huge costs of a dedicated plant with massive operating costs that produced cars that shared very few parts with other GM brands. By 2000, Saturn was losing $3,000 on every car it sold.

But an even bigger cost for GM was the time it lost building a brand it believed could fight off its Japanese rivals. The enormous strategic shifts that GM has been forced to make over the past year should really have been made back in the 1990s. If only Roger Smith had not believed that Saturn was the "key to GM's long-term competitiveness, survival, and success as a domestic producer," the company would have moved faster and earlier to fix its core business. The notion that another brand, rather than fewer brands, was the way forward turned out to be a colossal distraction.

Weep not for the loss of Saturn. The brand should be remembered as a failure from the start for three reasons. First, it failed to deliver on its mission to fend off the Japanese imports that now dominate the U.S. market. Second, it managed to lose billions of dollars at a time when GM needed every penny it could muster. Third, Saturn represents perhaps the single biggest explanation for GM's current precarious situation. Saturn's demise did not take place on Wednesday of this week. It started on a cold morning in Michigan a quarter century ago with the launch of a business model fatally flawed.

Harvard Business Online October 2, 2009