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Penske Passes on Saturn Acquisition

Future vehicle supply is not adequate to move forward.

by on Sep.30, 2009

Another GM brand bites the dust.

Another GM brand bites the dust.

Penske Automotive Group, Inc. (NYSE: PAG) has just announced that it has terminated its discussions with General Motors Company to acquire the Saturn brand.

In a statement the Penske Group said concerns “directly related to the future supply of vehicles beyond the supply period it had negotiated with GM.”

GM had agreed to continue producing several products, including the Aura, Vue and Outlook models, for an unspecified time.  The company had earlier said it would phase out those products, before 2011.

As a result of Penske’s decision, GM said it will shut down the Saturn brand and dealership network, in accordance with the wind-down agreements that Saturn dealers recently signed with GM. GM said the terms of the shut down would be forthcoming.

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In a statement, GM President & CEO Fritz Henderson said, “Today we learned that Penske Automotive Group (PAG) has decided to terminate discussions with General Motors to acquire 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. PAG’s announcement explained that their decision was not based on interactions with GM or Saturn retailers; rather it was because of the inability to source new products beyond what it had asked GM to build on contract.”

Saturn owners will continue to be able to purchase and have their vehicles serviced at Saturn retailers during an undetermined period. Once Saturn is shut Saturn owners will still be able to have their vehicles serviced at other GM dealerships.

Since announcing its intention to buy Saturn from GM on June 5, 2009, the Penske Group has been in the due diligence process to determine the feasibility of developing an independent distribution model for Saturn-branded products and service parts in the United States, including the sourcing of vehicles from GM and other potential suppliers.

One of the consultants on  the project was Tom LaSorda a former top executive at  Chrysler and GM. There was unconfirmed speculation that Fiat, which now controls the Chrysler Group, or Renault, absent from the American market for decades, could be the source of future Saturn models.

Penske had negotiated a definitive agreement with GM to source vehicles on a contract-manufactured basis for a period of time. After this period, the company would have been required to source vehicles from another third party under a similar contract-manufacturing agreement.

Penske Automotive Group says it negotiated the terms and conditions of an agreement with another manufacturer; however, that agreement was rejected by that manufacturer’s board of directors. Without that agreement,PAG has determined that the risks and uncertainties related to the availability of future products prohibit the company from moving forward with this transaction.

It’s almost 25 years since GM’s far-reaching CEO, Roger Smith, announced plans to create what would eventually be billed as “a different kind of car company.”  That set off a flurry of activity, with states across the country competing to see who could come up with the most lucrative incentive package to draw the planned Saturn factory.

It eventually landed in Spring Hill, Tennessee, along with most of the rest of what was intended to be a virtually stand-alone “company-within-a-company.”  Saturn had its own design, engineering and manufacturing centers and even negotiated a separate and more flexible contract with the United Auto Workers Union.

When the first car debuted, in 1989, it received mixed, if generally favorable reviews.  “People expected the car to lift off its wheels and fly,” recalled the late Skip LeFauve, who ran the operation at its launch. But it turned out that the real revolution was on the retail side, Saturn quickly earning a reputation for customer-friendly sales and service practices that won over the sort of motorists who hated the car buying process.

Initial momentum turned south, however, as infighting among the various GM brands — mostly Chevrolet — convinced senior management not to approve the much-needed expansion of the Saturn line-up.  By the time they finally authorized a larger car, it was a decade too late.

Even a series  of highly-regarded but expensive products during the last three years couldn’t revive the brand’s momentum.  Sales were an anemic 188,000 in 2008, a decline of nearly 22%, and volumes have continued plunging this year.

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One Response to “Penske Passes on Saturn Acquisition”

  1. Ken Zino says:

    Renault has since confirmed it backed out at the last minute.