Tag: General Motors, GM, Renault, Nissan, Penske Automotive Group, Saturn, Sale, deal, failed, phase out
October 6, 2009
On September 30th it was announced that Penske Automotive Group (PAG) would not finalize a deal to take over GM's Saturn franchise. In a press release announcing its decision, PAG stated:
Penske Automotive Group, Inc. an international automotive retailer, today announced that it has terminated its discussions with General Motors Company (GM) to acquire the Saturn brand, citing concerns directly related to the future supply of vehicles beyond the supply period it had negotiated with GM.
Since announcing its discussions with GM on June 5, 2009, the company 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. The company 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 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, 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.
In a separate press release GM 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.
As a result of PAG’s decision, we will be winding down the Saturn brand and dealership network, in accordance with the wind-down agreements that Saturn dealers recently signed with GM. Pursuant to the terms of those agreements, the wind down process will be determined and communicated shortly.
Late last year, as GM was spiraling toward insolvency and requesting loans from the US Congress the company announced as part of its restructuring plan it would seek to sell, consolidate or eliminate Saturn along with HUMMER, SAAB and Pontiac. In June 2009, GM reached an agreement to sell Saturn and its dealer franchise to PAG. Initially GM would continue to supply Saturn vehicles until PAG could find another source for product. PAG planned to establish contracts with other manufacturers to develop products for the Saturn brand network. It appears that a tentative agreement was reached with Renault, however, at the last minute the deal was canceled. As a result PAG did not have product to fill the Saturn showrooms once the GM-Saturn vehicle went out of production in 2011 and decided not to proceed to finalize a deal for Saturn.
The odds of Penske making Saturn a viable business were not good if the agreements with GM and Renault were finalized. The best outcome for the industry is the closure of the Saturn brand. It can be argued that Saturn had not only the freshest and best product of all GM’s brands going into the economic downturn and yet the company could not turn the business around. Why should it be assumed that PAG would have a better run at it? This is especially true today in the US as the annual sales rate dropped from 17 million unit a few years ago to around 10 million today.
Through September, Saturn only sold 60,216 vehicles compared with 158,721 last year (Graph 1). GM also only manufactured approximately 19,000 this year. Last year the company produced almost 150,000 vehicles for the brand. Twent years ago when Saturn was released it sold one line of three small cars all manufacturerd in Springhill Tennessee. At the end, the brand offered a full line of vehicle including five nameplate, manufactured throughout the world. Saturns's sales per nameplate dropped sharply in the later years even though total volume remained relatively constant.
Graph 1: Saturn Historic Sales (Source Automotive News)
Since the deal with PAG fell through GM immediately ceased production of all Saturn vehicles. Currently, dealers have about 12,000 vehicles in inventory or an estimated four month supply based upon current sales rates. GM plans to compensate the 350 dealers between $100,000 and $1 million per store to close by October 2010.
More importantly, the overcrowded US market does not need Saturn and GM’s* decision to shutter the brand is likely in its best interest as it eliminates a potential competitor. Furthermore, PAG averts what could have been a colossal business mistake. By not going forward with supplying vehicles to PAG, Renault also does not unintentionally create competition for its partner Nissan in the US. For all involved, not finalizing the sale of Saturn is the most rational decision and limits future fall out in this uncertain environment.
* Saturn’s assets were left with Motors Liquidation (Old GM) in bankruptcy.
Renault Says Saturn Talks Broke Down at Last Minute, Bloomberg, October 1, 2009
Saturn Couldn't Escape GM's Dysfunctional Orbit, Wall Street Journal, October 2, 2009
Wind-down terms anger Saturn dealers, Automotive News, October 5, 2009
GM ceases Saturn output, Automotive News, October 5, 2009
GM will wind down Saturn after savior Penske bows out, Automotive News, September 30, 2009
Life on Saturn? It's up to Penske, Automotive News, September 28, 2009
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