Friday, February 20, 2009

Saturn's Dealer Network: Any Interest in China?

As part of its survival strategy, GM has decided to jettison several of its brands to focus on keeping the remaining brands alive. One division going on the block will be Saturn, a brand launched with much fanfare back in the 1980s as a "different kind of car company".

Now Saturn's approximately 200 dealers are desperately seeking a way to keep their network alive, even if that means selling themselves to a foreign manufacturer. While it is not unusual for a car company to sell its vehicle brand and technology to another company, I have never heard of a dealer network trying to sell itself to a manufacturer, but that's exactly what Saturn is trying to do.

In this story on NPR, an owner of two Saturn dealerships in Connecticut says:
"You've got a collective group of retailers in strategic points throughout the country that represent most major metro areas. You have a brand that over the last 20 years has built a phenomenal relationship both in its community and with its current customer base and we don't think that this is the end of Saturn".
Some Saturn dealers are hoping that a foreign firm looking for a way to distribute cars in the U.S. will step forward and keep the Saturn network alive, and Chinese and Indian manufacturers are thought to be possible rescuers.

Though times are tough all over, companies with deep pockets are finding the landscape littered with rich acquisition targets. For example, Oracle has completed 10 acquisitions in the past year. Could this be a good time for a car company -- or group of companies -- to pick up instant U.S. distribution at a fair price in anticipation of the eventual recovery?

The most likely Chinese acquirers would be manufacturers of independent Chinese brands, and the largest of these would be Chery, which has also been mentioned as a possible acquirer of Volvo. In December of 2008, Chery was also granted $1.5 billion in funding by China's Export-Import Bank to be used specifically for overseas expansion. To my knowledge, Chery has yet to tap this source of funding.

The largest state-owned auto firms in China (First Auto Works, Shanghai Auto, Dongfeng, Changan, Beijing Auto, Guangzhou Auto) also presumably have access to funding, but most of their production of passenger vehicles consists of assembly of foreign brands. While they are all working on their own independent brands, these are still a rather small part of their product portfolios.

The private auto firms (e.g. BYD, Geely, Great Wall), while all producing their own independent brands don't have access to the government's deep pockets. While they may be very interested in acquiring Saturn's network, they would have difficulty pulling it off.

Another possibility that occurs to me is that one or more of the major SOEs could buy the Saturn network and use it as a distribution channel for ALL Chinese independent brands. This would relieve the Chinese automakers of the headaches of assembling a distribution network from scratch, and give them instant access to what was once (and presumably will become again) the most vibrant auto market in the world.

Naturally, the Chinese companies would have to overcome quality and safety issues for this to ever work, and that would take some time. I guess the question is whether the Chinese companies could get past that hurdle before individual Saturn dealers simply give up and close their stores.

So what do you think? Would such a proposition be of interest to Chinese auto firms? And if so, could they pull it off?