GM to shut down Saturn subsidiary

DETROIT - General Motors Co. will shut down Saturn now that a deal with former race car driver and auto dealer magnate Roger Penske has collapsed, marking the end of a brand that was supposed to revolutionize the way small cars were built and sold in America.

The deal with Penske was supposed to be finalized Wednesday. But the unexpected end came when his company, Penske Automotive Group Inc., was unable to find a manufacturer to supply vehicles for the brand's dealerships. GM had agreed to keep building Saturn models like the Aura, Outlook and Vue through at least 2011, but after that, Saturn would have to come up with its own products.

Penske's tentative deal to buy Saturn was announced in early June.

"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 CEO Fritz Henderson said. He said Saturn and its dealership network will be phased out.

Although the sales price was never disclosed, Penske was to get Saturn's roughly 350 dealerships and promised to retain 13,000 employees.

Penske spokesman Anthony Pordon said the company had reached a tentative deal with another automaker to make cars for Saturn, but that company's board of directors rejected the agreement. He would not identify the other automaker.

Pordon said there is little if any chance that the talks could be reopened.

Shares of Penske fell $1.89, or 9.9 percent, to $17.29 in after hours trading as PAG's expansion attempt failed. Shares rose $1.32, or 7.4 percent, to $19.18 in regular trading Wednesday.

Without another supplier in place before the deal was signed, Penske couldn't run the risk of taking on Saturn, Pordon said. It takes several years to design new vehicles or engineer foreign vehicles to meet U.S. standards. Penske would risk having no products to sell once the GM contract expired.

The Saturn announcement came on the same day GM and Chrysler met on Capitol Hill with dealers and lawmakers as talks began on the companies' plans to close around 3,000 dealerships. GM is cutting 2,400 dealerships from its 6,000-dealer network by the fall of 2010. Congress is weighing legislation that could force the automakers to reverse their closure decisions.

GM will stop making Saturns as soon as possible, but no layoffs are expected, said spokeswoman Sherrie Childers Arb.

GM had stopped building the Aura midsize sedan in Kansas City, Kan., and will not resume assembling them. Production of the Outlook large crossover near Lansing, Mich., and the Vue small crossover vehicle in Ramos Arizpe, Mexico, will be phased out as soon as possible, she said.

"Those plants produce products for other brands, and we think we can increase volume on those products that will meet market demand," Childers Arb said.

Saturn owners can still go to Saturn dealers for service. They would also be able to go to a certified GM dealer once Saturn dealerships close, GM said.

The news left many of dealers across the country, who had expected the sale to close Wednesday, stunned and fearful of being left with nothing to sell.

Carl Galeana, owner of two Saturn dealerships in suburban Detroit, said he's heard nothing yet from GM or Saturn, but if the plan is to phase out the brand and cut the products, he'll have to come up with other options.

"We're going to try to put some plan Bs in place at this point."

GM Chairman Roger Smith first unveiled the Saturn brand in November 1983. But the project was slow to develop and the brand did not officially launch until 1990. It featured the iconic tag-line "a different kind of car company."

GM's hope was that Saturn would attract younger buyers with smaller, hipper cars to better compete with Japanese imports. It built a new plant in Spring Hill, Tenn., devoted to Saturn vehicles.

Despite a cult-like following that drew thousands to annual reunions in Spring Hill, the brand never made money for GM, although the company has never disclosed how much it invested or lost. The Tennessee factory stopped making Saturns in 2007. Although it was retooled to build the Chevrolet Traverse large crossover, production of that vehicle will be switched to Delta Township, Mich., near Lansing and the Spring Hill assembly plant will be closed and placed on standby if demand for GM vehicles increases. The fate of parts making operations in Spring Hill was unclear.

As GM focused more on high-profit pickup trucks and SUVs, Saturn began to languish in the late 1990s. Then in 2006, car buyers began to find Saturn's new models more appealing. But after a good year in 2007, sales dropped 22 percent last year as the U.S. car market withered. Through August, Saturn sales were down 60 percent from the first eight months of last year.

GM has been trying to sell Saturn since earlier this year as part of its turnaround plan.

"I find this hard to believe," said Saturn dealer Galeana. "Everyone's been saying we're right at the goal line."

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AP Auto Writer Bree Fowler in New York contributed to this report.