Fate of GM reshapes automotive landscape
West Herr welcomes purchase of Saturn by Roger Penske
Published: June 06, 2009, 12:30 am
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DETROIT — Roger Penske is inventing a new business model on the ruins of General Motors Corp. The auto racing magnate and mega dealership owner is snapping up Saturn and opening his expanded sales network to foreign automakers looking to sell cars to Americans.
The deal announced Friday is another example of how the cataclysm that hit Detroit’s three carmakers is reshaping the global automotive landscape in profound ways, reducing their worldwide influence and — if Saturn turns out as Penske envisions — opening new markets to smaller companies.
“There’s no doubt that the automotive deck chairs are changing,” said Michael Robinet, vice president of CSM Worldwide, a Detroit-area auto industry consulting firm.
In the shake-up, well-known brands are changing flags quicker than an oil tanker in pirate-infested waters. Italy’s Fiat SpA is waiting for U. S. courts to approve its acquisition of Chrysler LLC’s assets. GM has worked deals to turn its German subsidiary Adam Opel GmbH over to a Canadian auto parts company with Russian backing. And Hummer may be going Chinese, although state media there reported Friday that the deal has hit regulatory hurdles.
Yet industry experts are doubtful that the flurry of mergers and alliances will be any more durable than failed marriages of the past, proving to be just one big distraction from the underlying issue that made them so vulnerable in the first place: making more cars than people can buy.
Still, Penske, who already runs Penske Automotive Group, the second-largest U. S. dealer network, thinks his business model is different enough to be successful.
GM and Penske expect to close the Saturn deal in the third quarter, with the wounded Detroit automaker continuing to build three models for Saturn to distribute.
Key to its success, though, will be the ability to sign on other global manufacturers to make cars for Saturn, giving it a diverse portfolio of vehicles that will sell whether gasoline prices are high or low.
But by opening the door to automakers not now in the U. S., such as France’s Renault, Penske could alter the market here, allowing smaller automakers to compete against Detroit.
Penske, in an interview with The Associated Press, said foreign automakers would be key to his business model, but they will have to match GM quality standards before Saturn’s 350- dealer network will distribute their products.
“As people around the world look at that, they have the opportunity to tap us on the shoulder and say ’we have product that we’d like to bring into the U. S.,’” he said.
News of the deal was welcomed by West Herr Automotive Group, which operates two Buffalo-area Saturn dealerships.
Scott Bieler, president of the auto group, praised Penske for his “incredible track record of success” in other ventures and his development of the Penske Auto Group.
West Herr’s Clarence and Orchard Park dealerships employ a total of 136 people. “We believe that this secures the future of the Saturn brand and the jobs of our employees and will create an even stronger Saturn for the future,” Bieler said in a statement.
Other foreign automakers who have succeeded in the U. S. began with a distribution network, then started manufacturing operations, he said.
Honda Motor Co., for example, started selling motorcycles at a few U. S. dealerships in 1959, then imported cars as its dealership ranks grew. But the Japanese company didn’t build vehicles in the U. S. until 1979, when it opened a motorcycle plant in Marysville, Ohio, that later grew to build the popular Accord sedan.
Penske said he expects to begin making money immediately on Saturn, which has never been profitable for GM.
“I would expect that the model that we’re putting together, the distribution model, will be profitable Day One,” he said. “We’ll have less costs. We’ll not be in the manufacturing side of it.”
Fiat’s takeover of Chrysler, in its final stages, follows a more traditional logic. CEO Sergio Marchionne has been studying U. S. plants for ways to raise efficiency, and will retool one so he can start making the stylish compact Fiat 500 and a sporty Alfa Romeo or two. Under terms of Chrysler’s bankruptcy plan, it will close five more U. S. plants.
In Europe, the Opel deal was reached under enormous political and union pressure to keep open all four German plants — which appeared to be one of the things that knocked Fiat out of political favor with early reports that it would close an engine factory. The winning bidder, Magna International Inc., has pledged to cut just 10,000 GM Europe jobs — a number eventually matched by Fiat.
But that deal is still not final. Fiat restated its interest Friday, although German officials downplayed prospects of Magna failing to complete the takeover.
Marchionne’s aim had been to combine Chrysler and Fiat with GM’s European business to create a world automotive powerhouse to produce up to 6 million cars a year, his threshold for surviving toughening world market conditions.
Such strategies have raised the obvious question among analysts: If the industry is being strangled by overproduction, why not just let the gasping giants expire?
For years, the U. S. auto manufacturing base has been too large for the market, forcing automakers to overproduce to keep plants running and flooding the market with vehicles. As a result, the Detroit Three especially have been forced to discount vehicles to sell burgeoning inventories.
But Penske said the continued restructuring by Chrysler, GM and Ford Motor Co. should solve that problem, at least in the U. S.
“I think there’s no question that this re-engineering of the manufacturing base in the U. S. by the Big Three will take capacity out,” he said. “But more important, the plants that will survive will be the ones that are most efficient.”
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