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Roger Penske is purchasing Saturn and the implications are possibly far reaching.  If a crisis, as the saying goes, is a terrible thing to waste then the auto industry circa 2009 presents a golden opportunity to see how a crisis opens opportunities to re-write the rules that govern an industry.  Penske’s gambit aims to do that and if he succeeds it could fundamentally change the way cars are designed and manufactured.

Saturn has been cast in the role of change agent before.  The company was conceived in 1982 as a “new kind of car company, making a new kind of car.”  Back then, the rap on the American car industry was that it produced poor quality goods.  That problem, in turn, was blamed on ossified relationships between the car companies and their “stakeholders”: relationships with the unions had become paralyzingly adversarial, relationships with suppliers were dictatorial, the companies’ own designers weren’t cooperating across divisional boundaries and the dealer network were unwieldy.  Saturn was meant to push the reset button on all of these relationships.

Saturn’s new model worked, for a while.  Its quality ratings were high and the brand developed a strong customer base.   But rather than spreading into the rest of GM, the opposite happened: GM re-colonized Saturn.  When Saturn opened a new plant in Wilmington, Delaware in 1996, it was stripped of most of the key organizational innovations of the original plant in Spring Hill, Tennessee.  Labor-management cooperation was replaced with a regular pattern contract, the car’s design was outsourced to a GM subsidiary, Saturn’s relationships with suppliers reverted to form, and plant’s managers were brought in through GM’s regular management career channels.  Saturn became just another GM subsidiary.

That is, with one exception: the brand and the dealer network maintained a good deal of independence. And they are essentially what Roger Penske has now purchased: not a company that makes cars (GM will continue to design and manufacture vehicles for the time being after which Penske plans to outsource manufacturing to a global network of manufacturers), but a brand and a distribution channel.

On first inspection, that doesn’t seem to be the stuff of fundamental industry change.  But it could turn out to be just that if Penske is able to capture power in the value chain and use it to influence the way cars are designed and manufactured.  The open question is whether Penske has the wherewithal to pull it off.

For now, the auto industry remains a prototypical example of what Gary Gereffi calls a “producer-driven” commodity chain.  Manufacturers like GM, Ford, Toyota and Honda hold most of the cards with control over backward linkages to material and component suppliers as well as forward linkages into distribution and retailing.  But if Penske’s model succeeds and spreads, it could shift the industry toward a “buyer-driven” model in which retailers and branded marketers are the most powerful players.

Jack Nerad of Kelley Blue Book thinks this is the direction things are going:

The proposed acquisition marks the beginning of a new business model in this industry… a model in which the distribution side of the business controls the brand, and manufacturing is conducted by one or more sub-contractors.

There are hints that this is where Penske would like to go.  He will draw on his extensive global contacts among suppliers and manufacturers to place orders for cars with features that he believes customers would buy.  It has been reported, for instance, that Penske wants to produce an all electric vehicle:

Now Roger Penske has intimated that the new and reconstituted Saturn might bring all-electric vehicles to market, and soon, if that’s the best route to take. Penske related to Edmunds that although the chance is small, it’s a definite possibility. Penske said to Edmunds that electric vehicles “might be the first vehicles produced in the U.S.” under Saturn’s agreement with foreign partners… Reading between the lines, it’s that “foreign partners” that jumps out. Because another arm of Penske’s vast automotive empire is Smart, which is known to have an EV model in the pipeline, so a person could put together Penske’s existing alliances with that big vacancy in the Saturn line up and see where things might fit.

If he pulled that off, it would fundamentally shift in the power-balance of the industry.  The key difference would be in who controls the design process.  Right now, Ford, GM and the rest do.  But Penske could, for instance, call up Tata Motors (in India) and tell them he wants them to produce a small car for under $5000 and brand it as a Saturn vehicle.  He could then turn to Rennault and ask them for a hybrid coup.  Also branded as a Saturn.  An auto industry geared toward brands would open huge opportunities for outsourcing from upstart companies in India and China and could possible change sourcing patterns among established players as a result.

But, as commentators at Saturn Revivial have pointed out:

The gray area of the deal is how much control Penske’s Saturn will have over the design of the vehicles it sells…. It’s one thing to scour the globe and make deals … but you didn’t really have that much input in terms of the development, design, features, whatever of the product….

In other words, he may not be able to pull it off. As Saturn’s earlier experiences with industry change show, simply having a new, interesting and (possibly) better business model is not enough to re-write the rules of an industry.  Industrial change on this scale is a highly contested process with entrenched actors ready, willing and able to take strategic action to keep the industry from moving off its current path regardless of whether that path is doomed to fail in the long run.  Or we might even see alternative organizing logics for how the industry should be organized emerge (the industrial change processes unfolding simultaneously in banking and particularly health care are equally fascinating from this perspective).

But if it does succeed, it would signal the death of the integrated manufacturing model in the auto industry.  It would also likely accelerate the loss of American jobs in auto-manufacturing.  It is ironic and worth mourning that this would come from Saturn which was created specifically to reform the old model from within.  But success could also offer the possibility of introducing radically new product designs like electric cars to the market, as well as radical industry changes that have so far proceeded at a snail’s pace.

The openness of the possibilities is what makes this moment worth paying attention to.  For students of industry evolution and institutional change, we are living through fascinating times.