June 6, 2009 at 1:00 am

Analysts: Penske could give Saturn the life that General Motors couldn't

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Detroit auto icon Roger Penske could succeed where General Motors Corp. failed by giving Saturn attention and resources that were inconsistently doled out after GM launched the brand in 1985.

Penske also will save huge overhead costs by concentrating on sales and distribution instead of manufacturing, industry experts said. And by returning the brand to its independent roots, Penske can establish a new Saturn and focus on selling and marketing instead of spreading resources among multiple brands, as was the case at GM.

"He's got a good chance of making it work," said analyst Joe Phillippi of AutoTrends Consulting Inc. in Short Hills, N.J. "He can make a good return -- it's going to depend on the vehicles he's selling -- but he's not going to be making the kind of money that you would make as a manufacturer. The flip side is you don't have all the costs of a manufacturing company."

Penske faces challenges executing and integrating the brand into his company's portfolio.

"It is occurring at a time when auto sales are at extremely low levels and the U.S. auto industry remains under stress in the current economic environment," Moody's Investors Service wrote in a note Friday as the ratings agency put Penske Automotive Group on review, saying its direction was uncertain. "It is also noted that Penske's existing auto dealership business has been under pressure due to the weak macro economic environment."

A deal to sell the Saturn brand and dealer network to Penske capped a frenzied week for bankrupt GM, which is shedding Saturn, as well as Saab, Hummer and Pontiac, in a court-ordered restructuring that will leave the automaker with four core brands: Chevrolet, Cadillac, Buick and GMC.

Penske has signed a memo of understanding to acquire Saturn and its dealer network, with a due diligence period of 60-90 days.

The deal will preserve 13,000 jobs and could close late in the third quarter, Penske told reporters Friday. Terms of the agreement were not disclosed.

The deal includes the Saturn brand, the parts operation based in Spring Hill, Tenn., and a network of about 350 dealerships.

Penske said GM will supply the Saturn Aura sedan and the Vue and Outlook SUVs on a contract basis for at least two years, after which he envisions importing vehicles. He could form a venture with Nissan Motor Co., the Japanese affiliate of Renault SA, according to a source familiar with the talks.

Automotive News, an industry trade publication, has reported that Penske plans to import vehicles made in South Korea by Renault Samsung Motors and sell them through the Saturn dealership network.

With Saturns eventually being made by foreign automakers, Penske will benefit from lower overhead and likely will offer fewer incentives and fewer variations of the same vehicle, industry experts said.

"A typical corporation's got major, major investments in production facilities and they need to keep those things running so we've seen them pump out more cars than the market will bear," said Jack R. Nerad, Kelley Blue Book's executive editorial director and executive market analyst. "That results in the need to do incentivizing and make major fleet sales, which has a negative effect on resale values. Penske won't be burdened by that. This is blazing a new trail that's an exciting one. He has a very good chance."

Ultimately, Penske wants to build Saturn vehicles in the United States.

It is unclear what will happen to the plants that assemble Saturn's three models. The Aura is built at GM's plant in Fairfax, Kan., while the Vue is built in Mexico. The Outlook is assembled at the Delta Township plant near Lansing, where GM is moving the production of the Chevrolet Traverse crossover SUV.

Saturn General Manager Jill Lajdziak will be offered a role in the new company, and Penske wants to offer a job to former Chrysler LLC Vice Chairman and President Tom LaSorda, a lean manufacturing expert who served as a consultant to Penske on the Saturn deal.

Penske expects to offer Saturn's U.S. dealers a new franchise agreement and said it was a priority to determine how many Canadian dealers would be part of the new company.

Penske said he was attracted by Saturn's strong network of dealers and pool of 3.5 million customers.

"We need to sustain that and reach out and get repeat referral business," Penske said. "At this time in the world, to be a part of the reorganization of General Motors is a great honor for me."

Penske is the head of Bloomfield Hills-based Penske Automotive Group Inc., which operates 310 franchises in the United States and internationally, selling 40 brands. Penske also distributes the Smart car, made by Daimler AG.

The Smart car and Saturn vehicles will be sold in separate dealerships, Penske said.

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