Wednesday, July 22, 2009

Roger Penske’s Saturn Do-Over

If we described motor vehicles like an oenophile describes wine at a tasting, it would be a lot more interesting than how we do it today. How would we describe Saturn at a car tasting? “… hints of green pastures beckoning the smell of home … a whiff of pride of workmanship; pride of creation … no aftertaste, but it recalls the fenced horse paddocks of Spring Hill, Tennessee … its not about the car, its about what the car means, to its owners and to its creators.” Pretty cool. Penske bought an experience, not a car company.

Roger Penske purchased the distribution rights for Smart a few years back, and recently bought Saturn from GM. Everybody has heard of Roger Penske – he is into just about everything automotive. He is high powered, full of energy, has extreme attention to detail, is old school, respects every penny, a brilliant strategist sometimes going against what everybody else is doing (and does so successfully), an opportunist, and he buys and sells with good timing. Typically, he hits the ball out of the ballpark.

But, he is playing in a pretty rocky ballpark. Penske will become an independent distributor of Saturn; because he has only a few years of production commitment from GM, he will be unlike any other independent distributor ever created. After a few years he will have to find another design and production source, or, he will have to do all this on his own. Who has travelled down that path before? Very few.
  • Penske – he already owns 25% interest in Hino Motor Sales USA – a small and successful medium duty truck distributor; Toyota acquired a majority ownership of Hino’s parent company in 2003.
  • Southeast Toyota and Gulf States Toyota are the poster children for success – but, after all, they are distributing Toyota products.
  • Ernie Boch’s Subaru of New England is still independent and very successful. They distribute the snow belt vehicle in the snow belt.
  • Other OEMs have used independent distributors in their past, but not been quite so successful. Mitsubishi and Mazda.
What seems to separate the cream from the milk here are two things: (1) incredible product, and (2) incredible spirit of entrepreneurial innovation. Saturn, Smart, and maybe more acquisitions present a unique opportunity that we are all here to observe: a “do-over.” Specifically, what will Roger do?

I don’t know, but the question is quite interesting.

If we all had a “do-over” opportunity in service-parts, what would we do? Thinking about do-overs, it makes sense to create three “bucket lists” – one bucket for stuff that already works better than anything else, a second bucket of things that can’t change, and another bucket for the stuff dreams are made of. But, let’s be practical and learn the lesson from Volkswagen Group of America (VWGoA) about “bounded” brainstorming. Let’s make sure the do-overs have positive ROIs with paybacks of less than one year. This will ground us to reality.

What’s In the Good Bucket?

The customer and how the customer is treated is front and center in the good bucket.

There was a lot that was right with Saturn.

On the sales side they are best known for really getting the customer service thing right – driven by large dedicated market areas that made their “one-price” approach work.

On the service-parts side the most notable innovation was Saturn’s Retailer Inventory Management (RIM) system, which set the standard for all RIM systems that we see now (but the distinction of first RIM system goes to VW in the 1970s). Saturn’s system was simple and engineered for a new entrant. Most brilliant was its technique for preparing a suggested parts order for dealers. Saturn dealers reviewed the order rules on a weekly basis and focused their energy on rules, not order lines. So, their energy was used constructively, and minimally.

On the distribution side, Saturn treated all their employees well and with a high degree of respect. Early on there were no “we-they” management-labor teams. They were pace-setters in warehousing ergonomics and clever ideas to ensure right-part/right-quantity quality. They were also able to leverage RIM to efficiently service all U.S. Saturn dealers out of a single warehouse. The logic was irrefutable: if Saturn controlled all dealer parts re-ordering, they also controlled order response times (ORTs). This made sense for servicing dealer service lane business.

Lots of good ideas here; but Saturn is no longer a new entrant.

What’s In the Can’t Change Bucket?

Very little. Perhaps the most obvious example of things that can’t change is the UAW workforce in the warehouse. Saturn learned that you could have the best UAW workforce imaginable, … in good times. Bad times were a different story. They could have written a business book in labor management called “Bad to Good; Calling it Great, But, Really, Pretty Much the Same.” Probably wouldn’t have sold well.

Maybe the UAW workforce, and their associated + $55 an hour wage and benefit cost, should not be taken as a given.

What’s In the “Do-Over” Bucket?

Penske will be distributing an existing product with incredible brand appeal. However, because he is lacking direct control of the “product” side, he needs to leverage what the core of the Saturn brand stands for. The product is almost (but, not quite – I will get to this) secondary at Saturn – or at least it was for years before Saturn lost some of their customer treatment magic. At its peak, the customer experience was at the heart of Saturn’s brand passion and they did it with at best mediocre product. This is good, because Penske will have less control of the product and more control of the ownership experience. Here are my top do-overs – in this week’s blog we will address only the top four.
  1. Saturn must do-over its aftersales ownership experience and attain best in class service and vehicle repurchase loyalty.
  2. Saturn must evolve and do-over its lifetime telematics “connection” with its customers.
  3. Saturn must do-over how it measures and manages customer satisfaction with dealer services.
  4. Saturn must do-over the dealer franchise agreement that bundles exclusivity in sales, service, and parts – this exclusivity acts against putting the customer front and center in your mission statement (and, I’m not a big fan of formal mission statements).
  5. Saturn must do-over its selling and F&I process – more harm than good comes from starting with one-price selling and evolving to sales methods that generate enough profit to keep the retailer doors open.
  6. Saturn must be lean and generate independent-distributor-like profits from its efficiencies.
  7. Saturn must be a money machine and not a cash collector – it must be best in class in revenue management.
  8. Saturn must be accountable to making money and accomplishing its mission – this is all about metrics, measurement, and execution.

The First Do-Over Should Be Doing Something About Repurchase Loyalty and the Linkages to the Service Experience

Penske has a way of re-thinking the obvious and doing business better, in obvious ways we never dreamed possible. Customers come in and buy a car or truck, spend an hour or so and typically walk away feeling pretty good about what they purchased, but not how they purchased. OK, I can live with that. Then, customers spend the next 5 years forming opinions about their dealer and OEM by interfacing with service personnel. The statistics are irrefutable – if they are very satisfied with their service experience, they will have a higher likelihood to repurchase the same brand of vehicle/whole-good. If they are not very satisfied, they have a higher tendency to try a close-by independent repair facility (IRF). If they are less than totally satisfied with the first IRF, they go to another one that is close by. So, it’s not that the IRFs are better, they are “more.”

Penske’s do-over here should be to launch with a customer retention strategy that is very “Penske.” It should focus on (1) trust/value/cost/convenience, (2) constantly moving repair satisfaction at dealers from good to great, (3) encompassing programs and DMS technology to bear on instant detection of customer dissatisfaction – and fixing it before it festers, and (4) focusing the dealer repair order (RO) on total price without known line-item dissatisfiers associated with labor rates and labor hours.

All this sounds compelling, but Saturn found that its customer experience could not sell cars all on its own. Since Saturn had about the highest ownership satisfaction with sales and service in the industry (based on many industry reports); why didn’t their very high service satisfaction lead to higher loyalty retention? Three icebergs sunk the ship. Saturn’s product walk from entry-level to up-scale didn’t work. Worse yet, its one-price no-haggle selling was not sustainable in a world dominated by rebates and incentives. And the third iceberg was the Saturn culture that was inflexible; it was tied to a great ownership experience, no-haggle selling, and cult-cars. None of these were even reasonably sustainable with independent dealers, operating in a tough competitive environment, having a limited appetite for investment. So, Penske, who is not reputed to be very feely-touchy, must first think about “culture” before he does anything.

The Second Major Do-Over Should Be a Comprehensive Telematics Strategy.

People are becoming increasingly “connected” – to their families, to their computers, to their phones, and to their vehicles/equipment. Beyond simply being connected, people want to leverage their connections to become more efficient. The best examples of these sort of connections are Komatsu’s Komtrax telematics system and GM’s OnStar. At this moment, no system is perfect. So there’s a lot of room for improvement and a lot of room to do more. The chart to the right represents a dream-team of telematics capabilities for a do-over. Saturn already has OnStar installed, which is best-in-class. Penske needs to negotiate OnStar coverage that tracks with the dream-team of requirements and capabilities. Making sure the entire package is cost neutral should be easy.

Third Do-Over Is Also “So Penske” … Change the Satisfaction Surveys!

You can’t manage what you do not measure, and gamed satisfaction surveys mostly measure how good dealers are at out-foxing satisfaction scores and factory incentive plans (and factory disincentive plans). Start with what you really want to measure. Does the customer intend to return to the dealer for service? Why or why not? Does the customer recommend the dealer for service? Why or why not? If we want to influence loyalty, shouldn’t we be investigating loyalty rather than satisfaction? Correct for dealer gaming. This is simple. The survey (or surveyor) should state that the survey results will remain private and not be shared with the dealer. The first question on the survey should ask if anybody at the dealership mentioned how important the survey was to them. If more than 20% of the surveys for a dealer come back with the first question checked “yes”, then drop all CSI support to the dealer in question. We call this a truth quarantine – if you want the truth about what John Q. Customer thinks, you need to quarantine him from the dealer. Reconsider whether your considerable investments in splashy concocted CSI surveys are worth it. They are very expensive and support a phony foundation. This is completely logical. If Toyota can consistently be mid-pack in CSI performance and still be the richest car company in the market, with enviable service retention rates, then it calls into question the validity of the big name-brand surveys.

Fourth Do-Over Is to Re-think Sales, Service, Parts Exclusivity

Let me explain. Saturn is all about the customer and putting the customer front and center. Part of the problem with Saturn was that the processes and behaviors of Saturn’s creators (and I include retailers in this) were not sustainable in an evolutionary marketplace. One price selling. Exclusive stores with exclusive architecture. Friendly treatment. At its essence, Saturn is about how its product is thought of (cult-like), how it is sold (family style), and how it is serviced (with care and competence.) It is not about giving retailers exclusive rights to buy and distribute service-parts. Saturn owners are geographically dispersed, while its few retailers are primarily in the larger metropolitan areas. If Saturn retailers cannot service all its owners due to geographic reasons, or because of failures in retailer service retention efforts, it should not reward its retailers with service-parts exclusivity. Penske should retain the ability to distribute genuine Saturn parts to whoever needs them in the servicing of Saturn customers. Or, establish service and parts only Saturn stores in rural areas to provide customers the convenience of local access to genuine parts and service. This would lead to more satisfied customers and higher profits for Penske.

Given Penske’s history, you have to believe he will bring creativity and innovation to the effort of re-making Saturn. We wish him well.

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