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Jared Hamilton
From: Jared Hamilton
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Ed Brooks

Ed Brooks Automotive Digital Marketer

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What Lexus Could Learn From the Failure of Saturn

Lexus recently announced that they are experimenting with a negotiation-free model; they piloting a haggle-free program at 12 stores nationwide.  But, you might say, Saturn already tried that and failed, this is bound to fail as well. The big question is; why did Saturn fail? Was it because of the one-price model?

A quick look back - Roger Smith, GM CEO, and Donald Ephlin of the UAW got together back in the 80’s with the idea of reinventing the automobile business to stave off Japanese competition. This is was a pretty complete reworking of the model from manufacturing to sales and one small component of that reinvention was a one-price, no-negotiation sales philosophy.

Customers loved it - Saturn consistently ranked in the top tier for Customer Satisfaction (behind Lexus). The folks who sold Saturns liked the process and made money. The workers that built the cars were proud of what was rolling off the line. Who didn’t like it? There was resentment from the other GM brands and from the more traditional dealerships. They saw Saturn as “moving their cheese” and they didn’t like it.

So what went wrong (and the lesson for Lexus) - There was regime change at both GM and the UAW and the buy-in from leadership at the top evaporated. The commitment, both financially and politically, had disappeared. After GM nearly went bankrupt in 1992, Saturn did not receive money to update its cars. As a result, sales fell considerably. GM, with the UAW’s obvious blessing, broke up the Saturn empire. Production was taken out of Spring Hill and divided among other GM plants. Saturn’s workers, now only one small piece of a larger population, became part of the larger GM workforce in their new locations and subject to the UAW International contract. The lesson is you need commitment to be successful.

I am not necessarily an advocate for one-price – I think there is room for different strategies and philosophies. There are customers whose number one priority is to get the possible deal and there is a growing segment of the market that prioritize saving time and avoiding aggravation above beating the dealership. There are different consumer buying processes, so there is room for different selling processes. But a dealer needs to identify their target market and then commit to their selling process.

It's all about the commitment. 

 

Joshua Michael Friedman
That's a refreshingly accurate recap of Saturn history. There's a lot of misinformation about Saturn "failing." It's never a simple story. "Saturn" didn't fail, but obviously the Saturn brand did not survive after a quarter centrury -- 25-some years -- in existence. Saturn dealers didn't fail. Saturn owners didn't fail. Saturn plant workers didn't fail. Saturn management didn't fail. General Motors did fail, and the interrelationships therein led to numerous issues affected Saturn.
Jim Boyer
Ditto the emphasis on commitment! In 2015, commit to your customer. Commit to her satisfaction, and try to earn her loyalty. Jim Collins wrote a useful book years ago called "Good to Great". A lot can be learned from the book's "comparison companies." One of them, Warner Lambert, was a 7.5 billion dollar multinational drug company. After launching Lipitor in 1997, which achieved $1 billion in sales in the first 12 months, Warner Lambert was unable to remain independent. They were financially too weak to fend off Pfizer's hostile bid, and surrendered in 2000. In my estimation, WL doesn’t exist today because they were committed to a business model that was designed for the 1960s. Commit. But make that commitment to your customers.
David Ruggles
Yes, One Price was the reason Saturn failed. When its selling system failed to move the metal at a profit, GM stopped providing the division with hot products, understanding that other divisions would move the metal, keep the plants running, and profits flowing. When Saturn was first introduced, GM lost $1500. on every car. That helped the dealers a lot but didn't do GM any good. They hoped to be able to ratchet up margins, but that didn't work out. Toyota tried One Price in Japan about 12 years ago. I happened to be in Nagano for my yearly visit to a client there and Toyota sent out some of their execs from Nagoya to talk about One Price. I don't recall the exact timing but I believe it was about the time they launched SCION here in the U.S. I had told the SCION people they were barking up the wrong tree and I told the Toyota execs the same thing. I told them One Price would work out just fine as long as they (Toyota) limited their production to be slightly less than market demand. I told them that if they weren't prepared to do that, they should give up the idea. Of course, they were NEVER going to give up market share to Nissan and others by going to such a production model. The idea of dealer inventory buffering works entirely too well given their production philosophy. Shutting down assembly, and starting it back up to carefully balance supply and demand just isn't in the cards. Toyota abandoned their great experiment shortly thereafter, but combined two of their channels, Auto and Vista, into one called Netz. They then introduced Lexus in Japan. Netz was given all of the small low margin cars which have little dealer profit in them even when sold at MSRP. Thus, Toyota was able to claim a One Price victory of sorts. But its all bogus in reality. People keep trying to go back to that well. Go figure. We KNOW some people will buy that way. We also know there aren't enough of them to make for a viable business model in the real world. Wait until Tesla gets to a point where they have more supply than demand and see what happens.
David Ruggles
RE: "Who didn’t like it?" GM shareholders. Saturn lost money for GM from the git go. The money that went into that failed experiment could have and should have been poured into Oldsmobile, once GM's most profitable brand.
David Ruggles
RE: "The lesson is you need commitment to be successful." The lesson is you need profits to be successful. RE: "But a dealer needs to identify their target market and then commit to their selling process." Why limit yourself? Adopt a strategy that appeals to the most buyers, not just s single niche. If you want to try to appeal to a single niche, go for it. Skinny down your expenses so you can make money on the reduced volume and profit. Then be prepared to explain to your OEM why you aren't penetrating your market when it comes time to re-up on your sales and service agreement.

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