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GM says it will close Saturn after sale falls through

General Motors had reached an agreement to sell the brand to Penske Automotive, but Penske has withdrawn. CEO Fritz Henderson says GM 'will be winding down the Saturn brand and dealership network.'

October 01, 2009|Ken Bensinger and Tiffany Hsu

In a surprise development, General Motors Co. said it would kill its Saturn brand after a deal to sell it to an auto dealership chain fell through at the eleventh hour.

GM had hoped the sale would keep the brand alive for its 350 dealerships, 13,000 workers and millions of loyal Saturn owners. But on Wednesday, Penske Automotive Group Inc. backed out of the deal, saying it could not come to terms with a manufacturer to build Saturns in the future.

Penske declined to identify that company, but a spokeswoman for French automaker Renault confirmed that it had been in failed talks with Penske to "supply cars, parts and technology to Saturn."

"This is very disappointing news and comes after months of hard work by hundreds of dedicated employees and Saturn retailers who tried to make the new Saturn a reality," GM Chief Executive Fritz Henderson said in a statement.

When Saturn was launched in 1985, GM hailed the brand as a model for the future, and one that could help it win back market share from foreign competitors. Five years later, Saturn began using Japanese-style, team-oriented manufacturing techniques. And it adopted a no-haggle price policy, eliminating the customary dickering loathed by many car buyers.

Today, GM has about three dozen Saturn dealerships in California. Those dealers will provide warranty service until they close, at which point the automaker will send customers to other GM dealers for car repairs and upkeep.

That was little solace to loyal customers such as Jen Vargas, a 31-year-old independent filmmaker from Orlando, Fla., who drives a 2008 Saturn Vue sport-utility vehicle.

"I'm really heartbroken," said Vargas, who said she has been part of the "Saturn family" for a decade. "It seems like lately, things have been closing down that were uniquely American."

GM had been expected to continue producing three vehicles for Saturn -- the Vue, the Aura sedan and the Outlook crossover -- for the next several years until the vehicles built by the new manufacturer were ready. Instead, a GM spokesman said production of all three vehicles would be halted by the end of the month and that Saturn dealerships would be shut no later than October 2010.

GM, which received $50 billion in taxpayer aid, has been trying to sell or close a number of its brands as part of its post-bankruptcy restructuring. It plans to wind down Pontiac by year's end and is moving ahead with a sale of its European Opel unit to a Canadian parts supplier.

But deals to sell Saab to a Swedish maker of exotic sports cars and Hummer to a Chinese manufacturer have been held up by financing and regulatory problems. The Saturn sale was considered the closest to completion.

"It's a major blow for GM," said Stephen Spivey, senior auto analyst at industry research firm Frost & Sullivan. "The expectation was that GM would be announcing a closure to the deal this week, not that it would fall apart."

Nobody was more surprised than Saturn dealers, who until Wednesday had been preparing to celebrate the brand's sale, not mourn its death sentence.

Don Januska, general manager and co-owner of a Saturn dealership in Scottsdale, Ariz., had already begun contacting his customers to jubilantly announce the transition to Penske ownership.

Now he and his 30 employees face the grim prospect that they will no longer be able to order new vehicles from GM and will be forced to stop selling cars altogether in 12 months' time.

"This was supposed to be a joyous time," said Januska, who has been involved with the Saturn brand since 1991. "It's a bit like a blow to the stomach."

GM originally said it would consider selling or closing Saturn in December 2008 as it sought emergency financing from the federal government that ultimately led to the automaker's filing for Chapter 11.

But when Bloomfield Hills, Mich.-based Penske, run by legendary former race-car driver Roger Penske, emerged as a potential bidder in the spring, Saturn dealers and customers were buoyed.

Publicly-held Penske owns 310 dealerships in the U.S. and Britain, is credited with saving a troubled former GM diesel unit and distributes Daimler's Smart Car in the U.S. The company's vision for Saturn -- to outsource production and instead focus on sales -- hinted at a bold and agile new way to do business in the stodgy, conservative car market.

In June, GM formally announced that Penske had outbid other suitors for the brand and that the deal would save the 13,000 Saturn jobs, most of them at dealerships.

But in the end, said Anthony Pordon, senior vice president at Penske, "there were hurdles we found out that we couldn't surpass."

According to Penske, it had worked out "terms and conditions" of a deal with the third-party manufacturer, but it was rejected by the board of directors at the last minute.

Pordon said Penske had no backup supplier. "You try to negotiate on an exclusive basis," he said.

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