Managerial Decisions There Are Many

Managerial Decisions There are many different factors that go into managerial decision-making. The situation with the Saturn brand at General Motors highlights some of these issues. The Saturn brand was created by General Motors in 1985 in an attempt to expand the company's profile. Saturn vehicles were intended the emulate the style of Japanese cars, which were gaining market share throughout the 70s and 80s at the expense of GM and other North American automakers.

To highlight the difference between Saturn and other GM brands, the company had its own manufacturing plant and was operated with a higher degree of independence than other GM brands (Taylor, 2004). The problem with Saturn is that it never managed to turn a profit. The brand enjoyed considerable momentum by the early 1990s. Customers were happy, the cars well-regarded and dealers were in short supply -- when the 1995 models were released there were reportedly only 400-1994 models still on dealer lots nationwide (Hanna, 2010).

The problem with Saturn was really not one of how the company was doing business but how it wasn't doing business. More traditional leaders both at GM and in the UAW took issue with the brand's success and drove it to behave more like the traditional GM -- in particular the organizational culture at Saturn, which was one of teamwork and support, rather than the typical management-labor relationship at other GM plants (Hanna, 2010).

This happened when GM took production away from the Saturn plant, and divided it among other GM plants -- kill the culture, kill the problem. Of course, this also resulted in a decline in vehicle quality, and this was followed by issues with the dealers, and the company collapsed. Why not kill the brand sooner? Saturn had not made a profit for a couple of reasons. The first is simple -- there are high fixed costs associated with automobile plants, and auto marketing.

You need to sell a lot of cars to pay for these costs. GM knew from the start it was going to take many years for Saturn to become profitable. Typically within the GM structure, stronger lines subsidize weaker ones, and which lines are stronger or weaker in a given year might be different -- diversification makes the entire company stronger. (Note -- GM lost money in a lot of years).

Saturn did not benefit from this, and had to cover all of its own costs, which never really happened because it was broken up right at the point when its popularity was becoming a threat to the entrenched interests within GM and the UAW -- the latter incensed that Saturn workers had rejected its contract. Once the production was moved around, Saturn became just another GM brand, and this did not have cachet in the marketplace.

The Saturn brand no longer stood for anything and the cars were not as good. Overall, consumer interest in the brand declined. I do not feel that escalation of commitment was a defining factor in GM's decision to continue with Saturn. By the 2000s, Saturn no longer had its own manufacturing facility, so those fixed costs were not weighing on the minds of GM managers. Some money had been invested in the brand, but internally GM was in disarray.

It also held on to Pontiac and Hummer long past the point where they were unprofitable. But there is microeconomic logic to this. The decision making process would likely have involved the costs associated with unwinding the brand, and the reality that unwinding Saturn was going to cost a fair bit of money. When exit costs are higher.