Saturn Falls Along With Penske Deal

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By Peter Whoriskey
Washington Post Staff Writer
Thursday, October 1, 2009

General Motors is closing its Saturn business, ending the once-ballyhooed effort to build "a different kind of car company," as the implosion of auto sales that started last year continues to ravage the industry.

The decision Wednesday to abandon Saturn came after negotiations broke down to sell the brand to Penske Automotive.

The setback follows a massive bailout effort in which the government sought to rescue the industry with aid for GM, Chrysler, suppliers and financing companies, as well as the "Cash for Clunkers" incentive program.

The Saturn closure reflects just how difficult the market remains: Penske balked because it could not strike a deal with another company to take GM's place as manufacturer. As a result, more than 350 Saturn dealerships are now slated to shut down and 13,000 jobs are threatened.

"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.

Now largely owned by the federal government, GM has been trying to shed several product lines, including Hummer, Opel and Saturn, in order to refocus corporate efforts. In June, it seemed that Saturn, beloved by some consumers for its "no haggle" sales approach, would be saved.

General Motors announced that it had reached a tentative deal to sell the unit to the group led by Roger Penske, the owner of an Indy racing team. Members included a number of dealerships and other auto businesses. Dealers were encouraged by Penske's previous success in turning around companies.

"Saturn has a passionate customer base and outstanding dealer network," Penske said at the time. "For nearly 20 years, Saturn has focused on treating the customer right. We share that philosophy, and we want to build on those strengths."

However, Penske was planning on having another company, possibly a foreign carmaker, build Saturns, and when he failed to reach an agreement, he pulled out of the deal.

"Without that agreement, the company has determined that the risks and uncertainties related to the availability of future products prohibit the company from moving forward with this transaction," Penske Automotive said in a statement issued Wednesday evening.

"The Saturn dealership network represented a unique opportunity for Penske," said Jeremy Anwyl, chief executive of Edmunds.com. But Anwyl said the risk of not being able to acquire cars to sell "proved to be too much to overcome to complete the deal."

The closure ends the experiment GM started 24 years ago in hopes of better competing against small cars manufactured in Japan and Germany.

Then-Chairman Roger B. Smith said it was the "key to GM's long-term competitiveness, survival and success as a domestic producer."

The brand would "change the way we design, engineer, manufacture and sell cars," he said.

It built a massive manufacturing operation far from Detroit in tiny Spring Hill, Tenn.

For a while, Saturn successfully competed with Japanese rivals. Thanks to its unique dealer arrangement, it introduced "no haggle, no hassle" car buying, in which people paid the posted sticker price.

The company prided itself on a collaborative culture in which dealers and workers regularly offered input. The union relaxed work rules that had restricted workers to one kind of job. Instead of pensions, employees got 401(k)s. Raises were based on performance, not negotiations.

Over the years, though, the models became less distinct from other GM brands, and consumer interest faded. Some blamed GM's expansive bureaucracy for homogenizing Saturn's cars.

GM brokered the deal to sell off the brand while it was working with the federal government to restructure its operations. So far, the government has invested nearly $50 billion into the automaker, and it recently spent another $3 billion on the Cash for Clunkers program that offered consumer incentives to stimulate auto sales.

But the decline of consumer appetite has been precipitous during the recession, and the fallout continues to shake up the industry.

Last year, cars of all makes were selling at the rate of nearly 16 million annually. This year, only about 10 million will be sold, according to analysts, even with the bump from the incentive program.

The announcement to pull the plug on Saturn was only the latest blow to many Saturn dealerships, where employees had anticipated becoming part of the Penske organization,

"It looks like everything's done -- it's frustrating," said Tom Tellepsen, general manager of Saturn of Manassas, on Wednesday evening after the announcements. "It seemed like we were on the half-yard line. I just don't know what happened."


© 2009 The Washington Post Company

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