Is the word "Saturn" worth billions?

With the bankruptcy of General Motors, several brands will be sold off, including Hummer, Saab, and Saturn. The sale of Hummer may include hard assets like facilities, tooling, equipment, and inventory, in addition to intellectual property like product designs and patents. However, some brands are likely to fetch the majority of their value solely from the brand name itself. 

On June 5 (2009) General Motors announced it had agreed to sell the Saturn brand and dealer network to Roger Penske. Some have speculated that the brand name Saturn is worth more than a billion dollars (although I'm guessing a sale price of hundreds of millions). That's a billion for the right to use six particular letters in association with the manufacture or sale of automobiles. How can brands be so valuable?

A brand has positive equity if consumers react more favorably to the branded product than they do to the same product when it is attributed to a fictitiously named or unnamed version of the product. Penske's plan is almost certainly to source vehicles from manufacturers who make very good products, but who have not established significant brand equity. (How anxious are you to buy a Samsung car? How about a Magna?)

Are consumers stupid? Don't they know that a Samsung car is still a Samsung car even if it has a Saturn brand on it? In part, yes...really not so much stupid, as overwhelmed with information and not able to keep up with exactly who makes what. (Recall that GM's version of the Toyota Corolla-- made by Toyota in the same plant, with the same design as other Corollas-- sold for $2000 less than the Toyota-branded car.) 

But even savvy consumers may be willing to pay more for a Saturn-branded Samsung than the same car sold directly by Samsung. This is economically rational because the purchase of Saturn by Penske is what we academics call an honest signal, a commitment by Penske to deliver on the brand promise. Penske was quoted in the New York Times as saying: "For nearly 20 years, Saturn has focused on treating the customer right. We share that philosophy, and we want to build on those strengths." Penske is unlikely to have paid a billion or even 100 million for the Saturn brand unless he planned to take actions that are consistent with the associations of that brand in the mind of its customers.

An interesting twist on this particular deal is the value that the brand Penske brings to Saturn, and indeed to the seller GM. Penske's reputation is solid gold, both in the business world and in the minds of consumers. Consumers may have increased confidence in buying a Saturn car, knowing that Penske is behind the company, and selling Saturn to Penske may make other suitors think again about the value that may be latent in some of GM's other brands. Consider how different this reciprocal effect is from that of Fiat's purchase of Chrysler, which if anything, further tarnished perception of value in Chrysler's assets.