SATURN BOUNCES BACK WITH ITS BASIC APPEAL: AND THAT MEANS TOUGH DECISIONS AHEAD FOR GM

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Saturn was supposed to get its comeuppance in 1994.

But it didn't happen-no, not by a long shot. And that's making it all the tougher for parent General Motors Corp. to decide what to do about expanding production and investing in new products for the designated import fighter.

A year ago, Saturn Corp. was stumbling and it was easier for GM to put the issues on a back burner. Monthly sales were falling, and dealer inventories were at a bloated 94-day supply. Saturn's cars were aging, and facing a new threat from Chrysler Corp.'s fresh-looking Neon, coming into the market at a price that undercut Saturn by several hundred dollars.

But in 1994, Saturn went back to the basics that first earned it a reputation as an adroit marketer. Despite the splash made by Neon, Saturn boosted its own sales 24.7% to 286,003 units in '94, and entered the new year with a relatively thin 45-day inventory, as calculated by Automotive News.

"Saturn has a much better case to present to the GM board for their continued existence and for an expansion of their product line and other resources," said Jesse Snyder, analyst with Autofacts, a West Chester, Pa.-based consultancy.

That's a big turnaround from early 1994.

"At that time, things were a little grim," acknowledged Steve Shannon, director-consumer marketing. "We all had confidence, but every time we picked up a newspaper, there was a `death of Saturn' story."

Mr. Shannon said Saturn made a mistake in the latter half of '93 by cutting ad spending. The move to cut ad spending by at least a third was prompted by an effort to finish the year with Saturn's first operating profit. The automaker also had underestimated how fast its Spring Hill, Tenn., assembly plant could increase production.

Saturn made the profit, but the ad slowdown led to the inventory buildups, and that in turn gave ammunition to critics who said Saturn couldn't maintain its early success.

That threatened to undo the brand built so meticulously by Saturn, its retailers and agency Hal Riney & Partners, San Francisco, since Saturn's launch in the fall of 1990.

Conceived by GM as a laboratory for new ideas, Saturn has had its biggest impact in the way it has forged relationships with its customers. Saturn finished third, behind only luxury brands Lexus and Infiniti, in the 1994 Customer Satisfaction Index published by research consultancy J.D. Power & Associates, Agoura Hills, Calif.

In a remarkable display of the loyalty Saturn has engendered, some 38,000 Saturn owners and family members, along with 6,000 townspeople, attended last June's "Saturn Homecoming," a four-day festival of entertainment and plant tours in Spring Hill.

Both Saturn and its retailers boosted ad spending by at least 50% in 1994, to an estimated $90 million by Saturn and $50 million by retailers.

"The advertising, marketing and positioning of the car in the marketplace has been an unqualified success," said Russ Hand, owner of two Saturn stores in the Los Angeles area. "What's carrying Saturn is the perception it really is `a different kind of company.' "

That image comes from Saturn's much-lauded devotion to customer care and from the warm, folksy advertising created by Riney.

Typical is a recent regional commercial developed for cold-weather markets, touting how Saturn's traction-control system and anti-lock brakes handle winter driving conditions. The spot features Wisconsin resident Jean Jubelirer, who drives her Saturn through snow to teach her Polynesian dance class.

This year, Saturn won't be able to squeeze much more production out of its Spring Hill plant, meaning there won't be any big sales jump for '95. And the product lineup won't get a freshening until a redesign of the current sedan arrives with the 1996 model year.

A number of scenarios for boosting Saturn volume are said to be under discussion. One would provide Saturn with a version of a car marketed in Europe as the Opel Vectra. Or Saturn could end up sharing a platform with another GM unit, getting a version of a car that would be sold in Chevrolet or Pontiac showrooms.

Saturn also could be picked to distribute GM's first electric vehicle when it goes on sale to meet a 1998 California mandate, though one insider said the decision on where to sell the car is "a real political football within General Motors."

Saturn's California dealers, at least, would welcome the electric vehicle.

"We'd be the perfect outlet," said John Campbell, owner of four Orange County Saturn stores. "The [electric vehicle] customer is going to demand a level of attention that the Saturn retailer can give."

An electric vehicle would carry some risk for Saturn, however, because the car GM is developing may not live up to consumer expectations. Models developed so far by automakers still have limited range and cost substantially more than equivalent gas-powered cars.

Mr. Hand agreed that an electric vehicle would be "a great image thing," but said it might be a long time before such a car provided the increased volume or profits that Saturn needs.

"It kills me to think GM would invest $5 billion to get Saturn started," he said, "and then stop $300 million short of providing a needed line extension."

GM's problem is that it has too many brands to feed at a time when the corporation is struggling to make its North American operations profitable. It's tempting for the carmaker to cut costs by insisting Saturn share its products with another division, but that sort of solution could compromise Saturn's distinct identity.

GM can't keep putting off a decision.

"Trying to continue without new products is like fighting gravity. You can't do it forever," Mr. Snyder said. "GM needs to find a way to provide Saturn dealers with the high-quality product they deserve."

-----------------------------------------------------------------------CORPORATE CLOSE-UP

Headquarters: Troy, Mich.

Sales: Estimated $4 billion in 1994.

Leadership: Richard "Skip" LeFauve, president; Donald Hudler, VP-sales, service and marketing; Steve Shannon, director-consumer marketing.

Ad spending: Estimated $140 million, including regional spending by dealers.

Agency: Hal Riney & Partners, San Francisco.

Recent successes: Boosted sales 24.7% in 1994, to 286,003 units.

Challenges: Continue to build its image for customer care to counter lack of any significant product changes this year; come up with a

plan that convinces parent General Motors Corp. to expand the product line.

Source: Advertising Age and company reports

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