General Motors to sell Saturn brand to Penske dealership chain

General Motors Corp. has a tentative deal to sell its Saturn brand to auto racing magnate Roger Penske's dealership group, both companies said Friday.

Penske has signed a memorandum of understanding that would give his dealership chain, Penske Automotive Group, Saturn's 350 dealerships, the companies said. Penske said that he expects to offer all the dealers new franchise agreements and will retain all 13,000 Saturn employees for now.

"I would expect that the model that we're putting together, the distribution model, will be profitable day one,'' Penske said in an interview with The Associated Press. ``We'll have less costs. We'll not be in the manufacturing side.''

Neither Penske nor GM would say how much Penske is paying for the brand. Penske said he expects the deal to close in the third quarter. Initially, GM will continue to produce on a contract basis the Saturn Aura sedan as well as the Vue and Outlook crossover vehicles. But Penske said he is in talks with global car manufacturers about building Saturn cars in the future.

The sale marks a new chapter for Saturn, which GM had been trying to sell since earlier this year as part of its turnaround plan.

GM chairman Roger Smith first unveiled the Saturn brand in November 1983, describing it as a revolutionary new way to build and sell small cars in America. 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 production. The factory had more flexible work rules than traditional GM plants for the employees who built the cars.

Despite a cult-like following that drew thousands to annual reunions in Spring Hill, the brand never made money for GM. The factory stopped making Saturns in 2007 and currently builds only the Chevrolet Traverse crossover.

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 per cent last year as the U.S. car market withered.

'Saturn was kind of an unpolished gem at GM,'' said Brad Coulter, director at the Bloomfield Hills, Mich., turnaround firm O'Keefe and Associates. ``They had never really fully exploited what they developed. Saturn is known for having some of the best-run dealerships. The brand is highly rated. It's a top-notch sales organization.''

Today, Saturn production is scattered at plants across North America. The Aura is built at GM's factory at Kansas City, Kansas. The Outlook is built in Lansing, Mich., while the Vue is built in Ramos Arizpe, Mexico.

The Saturn Sky roadster is built in Wilmington, Del., but that plant is scheduled to close in July and the model will be discontinued. The Saturn Astra compact hatchback was imported from GM's plant in Antwerp, Belgium, and was discontinued last year.

Penske Automotive will take over the separate Saturn parts warehouse and distribution centre in Spring Hill.

Penske in an interview said foreign automakers would be key to his making Saturn succeed, but they will have to match GM's quality standards before Saturn's dealer network will distribute their products.

'As people around the world look at that, they have the opportunity to tap us on the shoulder and say we have product that we'd like to bring into the U.S.'' he said.

Other foreign automakers who have succeeded in the U.S. began with a distribution network, then started manufacturing operations, he said.

Bloomfield Hills-based Penske Automotive Group Inc. owns the second-largest U.S. automobile retail chain by sales and consistently scores high in customer satisfaction surveys. The company also has race teams in the IndyCar, NASCAR and Grand-Am series. Penske received wide acclaim for heading Detroit's successful effort to host the 2006 Super Bowl.

Penske Automotive also distributes Daimler AG's Smart subcompacts in the U.S., but Smart has its own dealership network and Saturn dealers will continue to exclusively distribute Saturn vehicles, Penske said.

Carl F. Galeana, who owns two Saturn dealerships north of Detroit, said Friday he was thrilled that Penske would be the Saturn buyer.

'Roger Penske is an icon in the business world,'' Galeana said. 'I've worked with him personally. Nobody works harder than Roger Penske.''

Galeana said the fact that Penske is interested in Saturn means the brand has value.

'It allows Saturn to get back to its original roots, which is to be an independent car company,'' he said.

Shares of Penske Automotive rose five cents to US$14.65 Friday. The stock has enjoyed a brisk rally this year, more than tripling from an annual low of $4.82 in March.

After the deal was announced, the ratings agency Moody's said it was reviewing all of Penske Automotive's credit ratings. It cited the uncertainty over the deal's cost and its affect on Penske's bottom line. Moody's currently rates Penske Automotive's debt at ``B2,'' which is non-investment grade.

Detroit-based GM, which filed for bankruptcy court protection Monday, has said it plans to shed its Saturn, Hummer, Pontiac and Saab brands. Earlier this week, GM said it found a buyer for Hummer in China's Sichuan Tengzhong Heavy Industrial Machinery Co.

However, any such deal would require Chinese Commerce Ministry approval, and reports in state-run newspapers Friday said Sichuan Tengzhong had not yet obtained the OK.