Saturn's Sad Story Nears an End

The long, sad saga of Saturn is finally over.

The once-hot General Motors division that began with a bang 19 years ago is now headed into oblivion after a deal to sell it to retailer Penske Automotive Group (PAG) fell apart on Sept. 30. The chain of auto dealerships released a statement saying it couldn't find a source to manufacture new car models after 2011, when GM was scheduled to cease production of the existing Saturn models.

"It's not a big surprise," says James N. Hall, principal of Detroit-area consulting firm 2953 Analytics. "If you can't get product, you can't do the deal."

Penske had talked to more than one automaker about producing cars to sell in Saturn's 350 retail stores. The Renault-Nissan alliance was one potential supplier, say sources familiar with Penske's efforts. The two companies talked about selling some Nissan (NSANY) cars such as the Rogue compact SUV at Saturn stores. But a deal was never struck. There were also talks about bringing in cars built by Korean automaker Renault Samsung, which is 80% owned by Nissan partner Renault. But selling Samsung cars in the U.S. would have created a low-cost competitor for Nissan, so that was shot down, say sources close to Penske. In its press release, Penske said only that the board of directors for a potential supplier of cars killed the plan to buy Saturn.

GM Avoids Creating a Competitor While GM wanted to sell Saturn, the automaker may have dodged a bullet. Saturn's retail network consists of some of GM's best dealers. A sale would have created a strong network of dealers run by Penske Automotive, which is run by racing mogul Roger Penske, who is also one of the best auto retailers in the world. The retail powerhouse would have then sold someone else's cars once GM stopped supplying Saturns in 2011. "GM is very lucky because Saturn would have become a competitor," says Maryann N. Keller, an independent auto analyst who is on the board of retail chain Lithia Motors (LAD). "It made no sense to make it available as a brand and a distribution system."

In an interview in early August, GM CEO Frederick A. "Fritz" Henderson said the decision to sell Saturn was aimed at taking care of longtime dealers. It wasn't about a business strategy for GM. When asked if he was handing a rival carmaker a strong retail chain that could take market share from GM, Henderson replied, "We're not going to make it easy for them."

Now that the deal is dead, Saturn will join Oldsmobile and Pontiac as brands that perished as part of GM's bankruptcy reorganization. GM says it will give Saturn retailers cash to help wind down their businesses. But dealers say the money doesn't even offset their costs. California dealer Leo Bunnin says he isn't sure what to do. Roger Penske and Saturn General Manager Jill Lajdziak were supposed to start a tour of the brand's retailers in the coming weeks. So they thought a deal was all but done. "Retailers are shocked," says Bunnin, who has a Saturn store in Ventura, Calif. "My first thought is to turn it into a used-car store."

Brand Fizzled After Early Success The announcement brings to a close one of the more depressing chapters in GM's long slide. Saturn customers loved the experience of buying the small cars, and for a while the brand—launched in 1991 as "A Different Kind of Car Company"—succeeded in luring away some import buyers.

Indeed, Saturn started out as a stroke of marketing brilliance. From scratch, GM created a standalone company with its own factory and dealer network, and won buyers by selling the original S-Series compact at one fixed price. That was a revelation for buyers who hated haggling with salespeople. The debut car sold for less than $11,000 and was a bona fide hit.

But through the '90s, Saturn ran up against jealous siblings inside GM. In 1990, just a year before launching its first car, Saturn lost its patron when then-CEO Roger B. Smith retired. Soon it was battling for money and attention with GM's other brands, especially Oldsmobile. That partly explains why it took GM eight years to come up with a larger car, the doomed L-Series sedan, and almost a decade to replace the S-Series.

By the time GM started giving Saturn decent cars earlier this decade, the brand had been lurching from one marketing slogan to the next. In 2001 it became a "forward-thinking company." Before long it was all about the customer again. When that didn't work, Saturn emphasized its cars—hawking new models with the slogan "Like Always, Like Never Before." "Rethink American" was another idea that didn't hit.

Saturn hit a high-water mark with sales of 240,000 cars in 2007. But the brand was historically a big money loser and early this year GM, gushing cash, realized it could no longer support it. Today, Penske has reached the same conclusion.

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