Saturn Corp. plans to create a public company that will control some of its 388 dealerships.
Saturn dealers will hear the details in Charlotte, N.C., this week. They could sell their stores to the new company, become shareholders and continue as store operators, or simply reject the idea.
Saturn Corp. has two primary motives:
1. It wants to shed the 29 dealerships it is now operating.
2. It wants to create a single strategy for dealers to leave the business gracefully.
'I think it's a very smart move,' said Harold Gwatney, a Memphis, Tenn.-based multifranchise dealer. 'I'm lucky to have my sons to take over this business some day. A lot of retailers aren't so lucky.'
Saturn officials declined to comment on the impending spinoff, citing company policy that prevents them from discussing issues in the media before dealers have been informed. But several Saturn dealers spoke about the plans.
They said the proposed holding company will be based in Charlotte. One current Saturn dealer principal would be elected CEO. A second could be named COO. At least four operations managers from various dealerships would be named regional vice presidents.
SATURN'S STAKE SMALL
Saturn intends to hold only a minority interest in the company when it is spun off. How much Saturn owns will depend on how many dealers agree to sell their stores, and also on how much money is raised in the company's initial public offering.
Saturn's move is part of an upheaval in auto retailing. Ford Motor Co. is consolidating selected markets by bringing dealers into co-operative-like ventures that are directly controlled by the factory. General Motors has created a nationwide Internet Web site that routes online customers to a central database of available vehicles and then to a local dealer. Newcomer Daewoo Motor Co. is attempting to open a chain of factory-owned stores.
But Saturn's move to create an independent, publicly traded, multimarket holding company for a single brand is unprecedented.
The plan was partially spurred by a crisis. The General Motors subsidiary began buying its own retail stores last year after multifranchise dealers in Florida and Arizona agreed to sell their operations to Republic Industries Inc.
Saturn blocked the sale of those dealers' Saturn outlets. It feared that their Saturn identity would be threatened by Republic's plan to use its AutoNation USA label for its used- and new-car operations.
To manage the stores, Saturn created Retail Holding Co., a wholly owned subsidiary that functions as an independent retailer, even scouting real estate for future dealerships.
GOT TO DO SOMETHING
But now Saturn is under the gun to assign those dealerships to independent dealers. In October, the Florida Department of Highway Safety and Motor Vehicles told Saturn that as many as seven factory-owned stores there may have to close at the end of this month. Florida prohibits automakers from operating their own stores.
The state has warned Saturn that, if the dealerships are not operated by independent dealers, it will not renew their dealer licenses.
Meanwhile, Saturn has accumulated 29 stores during the past 18 months, including 17 from its battle with Republic.
More recently, some Saturn dealers have chosen to leave the business for other reasons. Don Massey of Plymouth, Mich., arranged to sell his three Michigan stores back to Saturn in November as he prepares to retire. Don Lucas, principal of Lucas Dealership Group in Cupertino, Calif., says he is also selling his six stores to Saturn. Saturn has 177 dealers.
It was not clear last week what role, if any, Saturn's largest single retailer, Hendrick Automotive Group, will play in the new Saturn company. Saturn sources say it is coincidental that the new retail company is locating in Charlotte, the home base for Hendrick Automotive. The Hendrick chain owns 14 Saturn dealerships.
The Hendrick retail chain came under a cloud in 1997 when its founder, Rick Hendrick, pleaded guilty to mail fraud and was sentenced to a year of house arrest. Hendrick stepped down as CEO of the chain and was replaced by former General Motors sales executive Jim Perkins. Perkins retired as Chevrolet general manager in 1996.
In recent months, Perkins has vowed that the chain will hold onto Hendrick's various franchises and even expand its Saturn operations. Efforts to reach him last week were unsuccessful.
Other dealers called the Saturn plan a crucial step to protect the brand.
John Campbell, owner of three Saturn stores around Santa Ana, Calif., explained that Saturn dealers cannot sell off their stores as easily as the dealers of other franchises.
Saturn used non-traditional approaches to assemble its retail chain in the late 1980s. Some of those approaches now appear to be at the core of the spinoff:
Saturn required its dealers to have a minimum net worth of $5 million. Those who qualified tended to be more mature dealers - most of whom are still involved 10 years later. Retailers last week noted that many Saturn dealers are now considering retirement.
Saturn awarded large, exclusive geographic territories to its dealers, with the expectation that franchisees would open multiple stores. As a result, the typical Saturn dealer owns not one or two stores, but four or five, Campbell points out.
'When a traditional dealer wants to sell a store, it's not so hard to find a buyer,' he says.
'But what's a Saturn dealer with seven stores going to do? You really need somebody with deep pockets to be able to afford it.'
Saturn also went to great lengths to select dealers who shared Saturn's non-traditional retail philosophy of one-price, customer-friendly selling. Saturn now worries that, if dealers sell their stores piecemeal, there will be an influx of new dealers who do not necessarily share the vision.
How many Saturn dealers are interested in selling out to the holding company is not yet clear. This week, dealers will hear presentations on how the holding company will operate. Some dealers may opt to sell their holding outright. Others may opt for stock in the new company.
During the past few weeks Saturn has told its dealers that selling to the holding company will be voluntary. 'They told me that if I want to pass my stores on to my children and their children, I can do it,' said one retailer.
But some dealers wonder how they would operate independently if all other dealerships are owned by a consolidated holding company. They wonder how much power the new retail company will have in factory issues.
Saturn frequently reaches decisions through a consensus approach. A committee of dealers has guided the factory on issues ranging from pricing to new product. Some dealers wondered last week just how many seats on those committees the new holding company would take.