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Wind-down terms anger Saturn dealers

Retailers weigh options in wake of collapsed deal; some to challenge GM's cash

Roger Penske's Saturn rescue fell short.

THIS STORY HAS BEEN CORRECTED: The print version of this story misidentified a Chicago-area dealer. The dealer is correctly identified here as Gordon Walker.

Saturn dealers woke up last Thursday morning to the grim reality that their brand was dead, Roger Penske was not going to save them and General Motors Co. planned to compensate them with between $100,000 and $1 million per store to close by next October.

Once known as the most satisfied retail network in the industry, Saturn dealers fumed.

"That's a small amount of money after all we've done," snapped Gordon Walker, who owns six Saturn stores in the Chicago area. "We'll probably sue them. We probably won't win, but that's not the point. They've really hung us out to dry. I just spent $700,000 putting up the new signage they asked for."

Other dealers privately told Automotive News that they intend to challenge GM's cash offer. GM executives told the brand's approximately 350 dealers last week via a phone conference that they would receive a fourth of their wind-down money immediately and the rest when they close their stores.

"It's better than nothing. But is it enough?" asks Michael Schramm of Saturn of Glenview in Illinois. "Of course it isn't. I've got $3.7 million tied up in real estate."

Options?

Saturn dealers now have few options:

-- Close shop and forget Saturn ever happened. GM officials told dealers that they will get the money whether they close tomorrow or choose to stay open through next year.

-- Attempt to become used-car retailers. Many Saturn dealers are already counting on used vehicles for as much as 75 percent of their volume.

-- Find another brand for their store.

GM told dealers that they will be placed into the pools of candidates who are vying for other GM franchises in their market areas. But few automakers are expanding their retail chains amid the recession. Kia Motors America Inc., for one, has targeted Saturn dealers in recent months.

"I have a phone call in to Kia," says Anthony Mancuso, owner of Saturn of Clarksburg in West Virginia. "There's no Kia dealership in this market."

Saturn dealers don't have many legal options, says Mike Charapp, a dealer attorney at Charapp & Weiss in McLean, Va. That's because when GM was in bankruptcy, it made all Saturn dealers sign termination contracts stating that if the sale of Saturn did not take place the brand would be wound down.

Dealers responding to an Automotive News survey last week were about evenly split on whether they would continue their Saturn operations as long as possible or wrap up early. Two-fifths said they hadn't decided what to do with their Saturn store yet. Seventeen percent said they would put a foreign brand in the store. None said they had plans to replace Saturn solely with a domestic brand.

About 50 Saturn dealers took part in the online survey, which was not scientific.

Distraught

Acquaintances of Roger Penske said the 72-year-old megaretailer and IndyCar chief was distraught and embarrassed over the collapse of his plan to buy Saturn from GM. For four months, he had scrambled to put together a deal with France's Renault S.A. to source a new lineup of Saturn cars starting in late 2011. The day before he was expected to formalize the Saturn takeover, he informed GM that he had not been able to consummate a vehicle supply deal and so would not be able to buy Saturn.

In confident anticipation of buying Saturn, Penske Automotive Group Inc., the nation's second largest new-car retailer based on 2008 unit sales, had a blitz of nationwide Saturn advertising ready to run last weekend. Penske had scheduled meetings with Saturn dealers in Los Angeles, Chicago, Atlanta and other cities this week.

"This whole deal with Penske doesn't smell right to me," says Jay Cimino, CEO of the multifranchise Phil Long Dealerships group and owner of four Saturn stores in the Southwest. "Everything we have was riding on Roger Penske putting together a deal -- and at the very last minute we learn that there's no deal? Why wouldn't he have worked all that out a month before closing? How come nobody at GM knew the deal was falling apart?

"If I had a salesman who let a car deal fall apart at the very last minute like that without asking somebody for help, I'd fire him on the spot."

No more ads

The smoke is still settling from the blast of bad news last week. Dealers also learned that they will not be able to order more vehicles, even if they stay in business through next year. And there will be no more Saturn advertising by GM.

Gordon Walker says he will probably close his six stores in the next 90 days. He has 300 new Saturns on order from the factory but was notified that he will not receive the cars now. He estimates he has $1.6 million in parts inventory and says he was told GM will not buy back the parts.

"We have 200 employees here who will lose their jobs and lose their insurance coverage," Walker says. "I'm 67 years old. I've been in the car business for nearly 50 years. My plan was to sell the [Saturn] stores to my partner, who now has two sons in the business.

"It just makes you want to cry."

Jamie LaReau contributed to this report

You can reach Lindsay Chappell at lchappell@crain.com
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