The Penske Plan and Free Trade Part Deux

How the times have changed. In the last thirty years free trade and U.S. Government regulations along with a few other factors have put the U.S. auto industry, once one of the largest employers of Americans, on the ropes. Chrysler has been swallowed up by Fiat. GM is in the process of being cut up into smaller pieces through bankruptcy proceedings. If GM happens to survive, it will be a much smaller company compared to the big mega corporation it once was. Ford fortunately has for the time being escaped a similar fate. Ford was smart enough to not partake in government bailout funds (for the time being).

Free-trade has not been kind to the U.S. auto industry in fact it has been very costly inflicting heavy blows to a once thriving industry. This is not really a surprise since free trade has done the same to many other once healthy U.S. industries. I am old enough to remember the days when a TV store actually sold American made TVs which are now extinct.

Every President since Reagan has pedaled this flawed doctrine as the greatest leap forward since the Industrial Revolution. What these politicians failed to mention was what Ross Perot called “the great sucking sound” of jobs lost, would eventually lead to the U.S. tumbling into third world status. After-all a nation that does not produce what it consumes is a third world nation. When the living standard was at its peak in the U.S. in the post World War II era (approximately 1945 to 1970), the U.S. produced the goods it consumed and the U.S. auto industry thrived.

By the 1980s free-trade policy for the U.S. Government went into full swing and the Japanese and other automakers flooded the U.S. market with their cars while blocking access of U.S. automobiles from their home markets. In essence the massive U.S. market was wide open for imports to grab market share but U.S. exports were blocked from entering into Japan and other countries. This could only be considered fair by a morally bankrupt person the likes of Tony Soprano.

Fast forward to 2009, now the next progression of Free Trade is about to occur which is an U.S. automobile company (that only sold American made cars) will transition to only selling rebadged imports. In other words there will be more loss of good paying jobs to foreign lands.

The innovator of this next cycle is none other than Roger Penske; a former race car driver and successful businessman. Penske who has a dealership network of over 300 automobile dealerships nationwide is no stranger to the auto industry. He’s a man with the “Midas touch” – everything he touches turns to gold. He currently owns a large auto racing company which could be considered a racing empire. His very large Penske Truck Leasing company is a mega success.

He even has experience in the area of manufacturing with part ownership of the Detroit Diesel Corporation which produces heavy duty diesel engines in the city of Detroit. Ironically Detroit Diesel was spun off from GM back in 1988.

And his company Penske Automotive Group created the U.S. dealer network for the Smart car and currently holds exclusive distribution rights for all Smart cars that enter the U.S. market.

The success of the Smart car has Penske moving to the next level, the purchase of the beleaguered Saturn brand from GM. On the surface it seems that an American icon like Penske, who has made most of his fortune in auto related endeavors, would be the perfect person to take the helm of Saturn.

However things are not as they seem. The 72 year old Penske has made no secret he has no intention of manufacturing cars, he only wants to distribute them. He would be buying Saturn to obtain the name and the dealership network. Now on the surface this would seem like good news since Saturn dealerships would remain open and these dealership related jobs would be preserved. However all manufacturing jobs related to Saturn would be lost. This would include the workers who currently build the entire Saturn lineup and the workers who work for different U.S. auto parts manufacturers who make the new parts that go into Saturns.

As of this time it appears if the Saturn sale to Penske does go through, Nissan and Renault would more than likely provide the cars to be rebadged as Saturns.

Would the plan work? Probably not.

No automaker has successfully sold in very high volume numbers a rebadged import in the U.S. market. A perfect example of this was the Geo Prizm, a rebadged Toyota Corolla. The Prizm was GM’s attempt to capitalize on skyrocketing Corolla sales. Even when the Prizm sold for less than the Corolla, buyers still bought the Corolla. In essence the Prizm was a flop. So Nissan producing rebadged Nissans to be sold as Saturns will be competing with itself; making the whole effort worthless. Think of it this way, if Pepsi were to take its popular Pepsi-Cola drink and rebadged it as Ultra-Cola (and both brands would be sold to the general public). Would you buy Ultra-Cola? And if you did, would you buy Pepsi-Cola? This illustrates that with a rebadged product there is no new customer base created merely a shift of an existing customer base across two brand names.

In order for Saturn to survive it would need its own innovative products, something new to entice buyers. This is how a customer base increases, not by cloning an existing product that buyers are already familiar with.

Renault however currently does not import to the U.S. so its rebadged cars sold as Saturns will not be perceived as rebadged imports to many buyers. However Renault’s track record in the U.S. market in the past has been dismal. Its purchase of AMC (American Motors Corporation) proved to be that automaker’s death. Renault’s quality control was also bottom of the barrel which did not help matters. The hope of economical Renault cars on AMC dealer lots boosting AMC sales never materialized and AMC’s Jeep division was the only part of the Renault/AMC venture that brought buyers to its dealerships.

Either way you look at the sale of Saturn to Penske, it is a “no win” situation for the U.S. auto worker. If the Penske Saturn plan is successful, Penske will rake in the profits and all Saturn related U.S. manufacturing jobs will be lost. The only positive is that the Saturn dealership network will be saved and with it some U.S. jobs. But if successful, Penske’s plan will be devastating since it will act as a blueprint for GM, Ford, and Chrysler to move their remaining production overseas.

Too bad Roger Penske, an icon in the auto industry, is not willing to save U.S. manufacturing jobs. It is a sad testament to the current plight of the U.S. and the implementation of the next destructive phase of free trade. Too bad there aren’t any businessmen like Lee Iacocca around anymore, we could sure use a few who still have faith in the U.S. auto worker.