Could Saturn Become a Company Again
BACK TO THE Hereafter AT SATURN Instead of high tech, GM is using inspirational Japanese management methods to get the $4 billion program rolling. Only volition the bet ever pay off?
(FORTUNE Magazine) – MEMO TO ROGER SMITH: Not to worry. Your pet project is on schedule. The physical is poured and the steel is going up at the Tennessee plant. In June prototypes disguised every bit Chevrolet Spectrums were undergoing road tests in the Southwest. Your pledge to drive a Saturn car off the assembly line before you retire in August 1990 is safe. But remind usa please: What was the point of this exercise? GM Chairman Smith volition get his car, but he will not get the program he announced with such fanfare in January 1985. Smith wanted a clean-sheet-of- paper projection with two major objectives: to focus the latest in automation and management techniques on a revolutionary minor car that would cream the Japanese in the depression finish of the auto market place, and to prove the mode for other GM divisions to cutting costs and improve quality. Said Smith: ''We believe Saturn is the central to GM's long-term competitiveness, survival, and success as a domestic producer.'' Lots has changed in the succeeding 3 1/2 years, as FORTUNE discovered in interviews with Saturn executives and a visit to its Tennessee establish -- the closest wait granted outsiders to date. GM'due south share of the U.S. market has tumbled from 44% to 37%, and its profits accept been badly squeezed. Then Saturn's $5 billion upkeep for its early years has been cut to under $4 billion, and the emphasis has slid from exploring leading-edge automotive technology to building a loftier-volume machine that volition recapture lost customers. Instead of costing $6,000, the Saturn car will now be priced at $10,000 to $12,000. So despite Smith's wishes, at that place will be no workerless ''lights out'' factories nor a l-mile-per-gallon engine. Saturn is now concentrating on building an American motorcar that can conquer that all-time-seller, the Honda Accord. Says Saturn President R. G. ''Skip'' LeFauve, 53, a manufacturing specialist: ''We're nevertheless exploring, but Saturn is no longer an experiment. Nosotros're not a laboratory. We're not a social program. We're a business.'' Even Saturn's lowered expectations will non be easy to encounter. Among the skeptics is John Schnapp, vice president of Massachusetts's Temple Barker & Sloane marketing consultants, who helped craft the successful assault of Korea'south Hyundai on the U.S. market. Says he: ''On all the scales of owner satisfaction, the import buyers that Saturn has to get its sales from are at the very top levels. Essentially Saturn has to go off the charts to get them, and that won't be easy.'' Chrysler Chairman Lee Iacocca takes a potshot at Saturn in his latest volume, Talking Straight, calling it zippo more than than ''some other Chevy for 1990.'' Writes Iacocca: ''Now it looks as if the great Saturn coup is dwindling into a big nil. Saturn, unfortunately, is just one of GM's headaches -- and they're all Excedrin ones.'' The most contempo iteration of Saturn leaves unanswered some bigger questions well-nigh GM. How can it justify building a $ane billion manufacturing complex for Saturn when the company is awash in excess capacity? Could the coin have been improve spent on improving existing procedures and products? And how is Saturn going to make a profit? The cars volition compete in a market place segment where peachy toll competition keeps margins tight, and Saturn has a huge initial investment to amortize. But Make NO Mistake: Saturn is a bold and far-ranging undertaking. No other automobile manufacturer could pile its chips so high or chance then much on a startup operation. Freed of the usual encumbrances of the GM bureaucracy, workers and managers already appear to have taken behemothic steps toward defining a new style of building and marketing cars. As it moves forward, Saturn volition likely alter long-established practices elsewhere in the industry. Japan wrote the book on high quality, low cost, and relentless productivity gains in machine manufacturing, merely Saturn is busily developing its own translation. The silvery-gray and maroon offices in the Detroit suburb of Troy are open-style cubicles, and executives consume off newspaper plates in a spartan cafeteria. Consensus and teamwork are the management bywords. Policy is fix by an 11-homo Saturn Action Council that includes a United Machine Workers wedlock representative. Dealers helped pick options for the car and choose Hal Riney & Partners equally Saturn'southward advertising agency. The most dramatic evidence of Saturn'due south Japanization can exist seen at the manufacturing plant complex in Jump Loma, Tennessee. The largest unmarried construction projection in GM history, the mile-long installation will combine all the essential operations on i site, much equally the Japanese have done. In addition to the usual canvass-metal stamping and body associates, Spring Hill will include a foundry for casting engine blocks, a ability-train assembly line, a plastics- molding unit, and an interior trim shop. Surrounding each operation will be dozens of loading docks and so that materials and parts can exist delivered shut to the assembly lines kanban-style. Spring Loma represents a big change from recent GM efforts to boost factory productivity and quality. The ranks of robots and armies of car-carrying automated guided vehicles that populate GM's newest plants will be thinned. Instead Saturn is pouring its money into people direction. It plans to rent exceptionally motivated workers, put them through intensive training, give them more say in how their jobs get done, and pay them a salary plus a performance bonus -- just like Saturn executives. Relations with Saturn suppliers are, in the Japanese way, symbiotic. Saturn will have fewer primary suppliers and buy fewer parts from other GM operations. The suppliers take to work in lock step with the found. Some will figure out what to ship past reading plant production schedules for the coming week. A single miscue could foul the assembly process. ''This assumes everybody is going to do jobs correct the first time,'' says Joseph A. Chrzanowski, a Saturn finance manager. ''If there is a problem, we inflict pain on the source until it gets stock-still.'' Although Saturn shopped the world for ideas, it establish many solutions in Fremont, California, at GM's articulation manufacturing venture with Toyota. Known every bit Nummi, for New United Motor Manufacturing Inc., the functioning uses management and product techniques pioneered by Toyota, considered the world's most efficient automaker, to achieve the highest-quality output of any GM plant. Dozens of GM managers accept rotated through Nummi so that, like missionaries, they can spread the word around the organization. Says Mark Hogan, a Nummi alumnus and at present a planner at GM'due south truck and passenger vehicle group: ''Nummi has taught us that people are the most important article. Saturn will have both the people side and the manufacturing techniques of Nummi.'' Earlier GM efforts at producing innovative import-fighting small cars take misfired: Remember the Corvair in the 1960s and the Vega of the 1970s? Every bit with the more recent X-cars and Fiero, inadequate engineering undermined creative design work, and the cars became marketplace casualties. The Saturn automobile will use the latest in proven technology only won't stretch the envelope. Executives try to play down inflated expectations. Says Thomas W. Shaver, director of marketing services: ''Information technology is not going to be atomic powered or become cypher to 100 in two seconds.'' 1 exception is the all-aluminum engine, much lighter than conventional bandage atomic number 26. It volition be produced using a new mass-production application of the technique called lost-foam casting, which yields more accurate parts needing less machining. The 1991-model Saturns will come in two versions when they are introduced in the fall of 1990: a four-door sedan and a sporty coupe. A high-performance engine with double overhead cams volition be offered as an pick. Some of the Saturn's body panels are likely to be plastic instead of steel. An early on four- door prototype, photographed clandestinely half-dozen months ago, looks like a cross between Chevrolet'southward Corsica and its Camaro. Says Christopher Cedergren, senior analyst for J.D. Power, a California market place research firm: ''The styling is nothing spectacular, merely information technology is headed in the right direction.'' Working off a clean slate and drawing ideas from would-be customers in focus groups, Saturn product designers accept done plenty of erasing and rewriting. For example, the fuel tank mouth was shifted from the correct side of the machine to the left, and so that drivers who pump their own gas would not have to walk around the car to practise and so. Saturn'southward most hard mission is to steal sales from Toyota, Honda, et al. without cutting into other GM cars. Says marketing vice president Donald W. Hudler: ''We take failed if 80% of our buyers don't come from the ranks of import owners.'' GM already sells virtually 900,000 cars in Saturn's size and price category, and it has a hard time wooing the owners of Japanese cars. According to analyst Ronald A. Glantz of San Francisco's Montgomery Securities, the Chevrolet Corsica and Beretta, introduced last yr, get about of their sales past cannibalizing other Chevrolet models. Says consultant Schnapp: ''Only ane in v import buyers seriously shops any GM vehicles. That is a terrific problem for GM, yet it hopes that in one swoop information technology will be able to cleft into a whole group of buyers who seem very attached to the nameplates they have been favoring.'' Saturn executives have several tactics in mind. In the conventionalities that Americans will choose a domestic over an import if the two models are comparable, Saturn will be figuratively wrapped in the American flag. But not a GM ane. Because of the connotations associated with its corporate parent, some negative, ''yous won't see Saturn as a GM car,'' says LeFauve. Saturn as well aims to requite customers a better ''ownership experience.'' In Japanese fashion, it will use relatively few dealers -- 100 the first yr, and no more than than 250 to 300 somewhen (GM dealers get no special preference). Those chosen from amid the 2,000 applicants volition have to invest heavily in facilities and employee training and pay shut attention to customer service. In exchange, they will get unusual flexibility in setting upward their operations. If they choose, they can install a exhibit in a suburban mall to capture shoppers and locate a service department in a lower-rent neighborhood. SATURN EXPECTS to compete aggressively on toll. The yen has risen 91% in value since the project was announced, so competing is easier than it used to exist. The company has adopted an elaborate system of benchmarking individual operations against world standards and looks for savings everywhere. And then much stone was plant at the Spring Hill plant, for instance, that Saturn ready up its ain concrete-mixing operation. The linchpin of Saturn's toll competitiveness is the revolutionary contract it arranged with the UAW. Task classifications take been shrunk from every bit many as 110 elsewhere to 5. Workers are ''partners'' in Saturnspeak, and time clocks accept been eliminated, a departure from tradition even the Japanese have merely recently begun. Once the plant is at total speed, simply 80% of the base bacon ($27,976 for semiskilled workers at today's rates, $32,219.20 for skilled workers) will be guaranteed. The remainder, which tin exceed 100% of the base, will exist pegged to profitability. The company is obliged to recruit its work force from amongst the ranks of electric current GM UAW members, including l,000 now on layoff, but it is looking for a select breed of ambitious gamble takers. It hopes to generate 40,000 applicants before it fills the offset three,000 jobs in 1990. Since few if whatever now live within commuting altitude of Spring Colina, Saturn volition spend up to $2,770 per family to relocate them. The verdict on the Saturn car will not exist in until the mid-1990s. The initial model-year output of up to 250,000 will probable sell out on novelty lone. But whether sales can be quickly additional to the 500,000 that Roger Smith forecast in 1985 depends on continuing client demand. That in turn will rest on Saturn's ability to generate positive word-of-mouth most its operation and reliability. It will also take several years to evaluate Saturn's direction organization. Union relations, forth with the heterodox dealer network, could well exist its most lasting innovations. But they depend on Saturn's condition every bit a new, stand- alone organization. To replicate them, GM will take to negotiate wholesale changes in existing franchise agreements and matrimony contracts. Both Ford and Chrysler have Saturn-blazon cost reduction and quality programs. But they are aimed at improving existing processes and are non tied to new-auto development. In Ford's four-twelvemonth-old Blastoff project, 100 line managers are looking at everything from beak-paying mechanisms to assembly line techniques. Once a study is completed, the Alpha manager in charge is reassigned to an ( operating division to put the new procedures into place. Eugene Jennings, an industry consultant and management professor at Michigan Land University, sees an irony in the dissimilarity between the ii approaches. Ford, which currently is brusk of assembly chapters, could make good use of Saturn'southward found. GM, on the other manus, is more than resistant to change than Ford and would have profited more from a program that has directly input to the rest of the organization. Says Jennings: ''I call back anybody realizes that, at least in the short run, GM should accept gone into an Alpha-type program.'' That's not to say that the rest of GM is continuing still while Saturn moves forward. Saturn-fashion initiatives are being pursued elsewhere in the company. For case, the then-called Quality Network, a articulation GM and UAW endeavor, provides forums for workers and managers to develop workplace improvements. ''By the time Saturn is up and running, other GM plants volition have reached a state of harmony,'' says Maryann Keller, a New York security annotator and author of a forthcoming book on GM. Besides, GM is weeding out weak suppliers and cultivating closer ties with stronger ones. Adds Keller: ''Supplier relationships accept evolved so speedily they can't wait for Saturn to bear witness the fashion.'' And therein lies potentially the greatest irony. Suppose GM keeps making advances in productivity, quality, and price reduction. By the time Roger Smith climbs down from the commuter'southward seat in 1990, the rest of GM could be then far advanced that it has largely defenseless upward with Saturn. The assuming, visionary venture volition then await for all the world like just another car sectionalization.
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Source: https://money.cnn.com/magazines/fortune/fortune_archive/1988/08/01/70847/index.htm
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