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The Captain Buys a Car Company

Is this the future of the automobile industry?  The Captain, Roger Penske, CEO of PAG (Penske Automotive Group), is buying a car company; but he is not buying the whole company.  Instead, he is buying only the Saturn distribution network and the rights to the Saturn brand.  Under the terms of the agreement GM would continue production, under contract, of the Saturn Aura, Vue and Outlook models until the middle of 2011.  In the meantime, PAG will be looking for cars from other manufacturing sources. 

This turns the automotive industry on its head.  Instead of an automotive manufacturer controlling the dealerships, the dealerships will outsource production.  Is this an unfair advantage? 

Roger Penske is probably the most successful racing team owner in the history of motor racing.  Others, Enzio Ferrari for example, may have won more races; but only Penske parlayed his racing team ownership into a business empire. 

Penske has always looked for a clever solution that would give him an edge.  In SCCA Trans-Am Racing, the rules were that refueling had to be by gravity.  Fuel cans were used, the same kind that NASCAR still uses.  The Penske team put the fuel in a tank on top of a tower twenty feet or so above the track and refueled through a hose to the car.  Refueling was still, “by gravity;” but a twenty foot pressure head made refueling much faster.  There are many other examples of clever Penske solutions, within the rules but sometimes just barely. 

Leon Mandel, an automotive writer, coined a term for this kind of clever thinking, “the unfair advantage.”  In addition to clever thinking, the unfair advantage included hard work and attention to detail; and it didn’t stop at the track. 

There was a time when racing teams, probably a little unpolished, approached potential sponsors hat in hand, begging for support.  Roger Penske, impeccably dressed, approached potential sponsors with a business plan, showing them the value of the exposure they would get.  He brought sponsors and their customers to the track, wining and dining them in hospitality tents or suites, making them feel like a part of the racing team.  This was a fantastic schmoozing opportunity, a value for the sponsor.  It transformed racing, making it the high-dollar sport it is today. 

Roger Penske used the unfair advantage to build Penske Corporation, with four billion dollars in sales annually from automobile dealerships, rental trucks, diesel engines, fleet management and other companies.  Oh yes!  Penske Racing won the Indianapolis 500 again this year. 

Outsourcing is a way of life for racing teams.  Chassis, suspension components, wheels, engines and other parts are manufactured by someone else and then assembled into a racing car.  Penske Corporation has been doing this successfully for a long time.  There is every reason to believe that it will be equally successful outsourcing automobile manufacturing. 

Since the Penske Automotive Group dealerships will control manufacturing, rather than the other way around, the focus should shift to providing the cars that drivers want instead of finance and manufacturing.  It’s a good bet that Saturn, guided by that input rather than GM corporate dictates, will finally be successful. 

Will others follow Penske’s example?  Will some part of the automotive industry shift from giant, vertically-integrated companies to smaller, customer-oriented companies, much more responsible and flexible, with most manufacturing outsourced?  The Tesla Roadster and Fisker Karma are following this path.  Maybe others will also. 


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