GM to close Saturn as sale to Penske collapses

General Motors Co will close Saturn and wind down its dealership network after a deal to sell the faltering brand to Penske Automotive Group

collapsed, the automaker said on Wednesday.

The breakdown of a deal that had been widely expected to close this week will force some 350 Saturn dealerships to shut down and could cut 13,000 U.S. jobs that would have been preserved under a plan by auto magnate Roger Penske.

Penske had been negotiating with Renault SA to acquire vehicles for the Saturn brand once a production agreement with GM had expired. Those talks collapsed, scuttling the Saturn acquisition by Penske.

Mr. Penske is clearly a very clever man, said Paul Melville, a partner at Grant Thornton corporate advisory and restructuring services. If he has pursued a deal with Renault and if it's too difficult to make that happen, it's dead.

Shares of Penske Automotive were down about 8 percent in aftermarket trade. The breakdown of the deal was announced after the New York Stock Exchange closed.

Renault acknowledged that it had been in talks with Penske to supply cars, parts and technology for Saturn, which had not been profitable for GM.

The conditions for an agreement have not been found, Renault said in a statement.

GM said it would immediately begin the process of shutting down production at a plant in Michigan that builds the Outlook SUV and a plant in Mexico that builds the Vue small SUV.

The automaker also has halted plans to resume production of the Aura sedan at a Kansas plant. Production was scheduled to resume in mid-October.

'VERY DISAPPOINTING NEWS'

GM said it would wind down Saturn by October 2010, under an agreement already approved by its dealers. Saturn dealers were to have signed a new agreement with Penske and many were expected to close in the weeks ahead.

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.

The Saturn transaction was to have been part of an orchestrated plan by GM to shed niche brands and focus on its Chevrolet, GMC, Buick and Cadillac lineups.

GM is in the process of selling a controlling stake in its European Opel brand, as well as its Saab and Hummer brands. It is scrapping Pontiac along with Saturn.

Penske, 72, had been negotiating to buy Saturn under a deal that would have seen GM supply vehicles under contract until the end of 2011, leaving him free to tie up with other manufacturers afterward.

In a statement, Penske said it had negotiated an agreement to source vehicles from another manufacturer after its supply agreement had ended. But it said that deal was rejected by the other automaker's board of directors.

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 said.

The sudden announcement stunned Saturn dealers and customers.

They're going to stick around, they have to, said Judy Thomas as she was getting her Saturn serviced at a Los Angeles-area dealership. It's fast, it's economical and it doesn't give me problems. It's my baby, said Thomas, 48, from Gardena, California,

A DIFFERENT KIND OF CAR COMPANY

GM created the Saturn brand in 1983 in a bid to compete with Japanese automakers on quality and service and to provide car buyers with no-haggle pricing.

The brand found a strong following in the 1990s by billing itself as a different kind of car company and inviting thousands of Saturn owners to tour a Tennessee factory it built specifically for the brand.

But Saturn sales peaked in 1994 and an attempted turnaround earlier this decade sputtered out despite investment by GM to create a whole new line-up.

Struggling to regain its financial footing, GM announced in February that it would either spin Saturn off or close the brand. Penske and GM announced a preliminary agreement on Saturn in June after the U.S. automaker filed for bankruptcy.

GM does not expect the Saturn production halts to have an impact on production employment because the affected plants produce other vehicles.

Saturn sales have dropped 59 percent through August from a year earlier amid the uncertainty about the brand's future. Its best-selling models are the Vue small SUV and the Aura sedan.

Penske shares were trading at $17.60 Wednesday night, down from $19.18 at the close.

(Additional reporting by Laura Isensee in Los Angeles and Soyoung Kim in Detroit; Editing by Leslie Gevirtz, Bernard Orr, Gary Hill)