Topsy-Turvy: Penske Dealer Group to Buy Saturn from GM

Penske Automotive Group, an auto dealer chain based in Bloomfield Hills, Mich., today announced a deal to buy the Saturn brand from General Motors.

That's yet another way in which the spectacle of once-mighty GM being bankrupt represents "The World Turned Upside Down," to borrow a figure of speech from the American Revolution. (Supposedly, the song was played as the British surrendered their arms at Yorktown.)

Purchasing Saturn makes Penske Automotive, which is run by Indy racing legend Roger Penske, the first dealer group with its own brand. That concept is actually an idea that has been kicking around the auto industry since the late 1980s.

A visionary dealer named Ron Tonkin, one of the first so-called "megadealers," predicted back then that the balance of power between dealers and manufacturers would tilt toward the dealers.

Tonkin, based in Portland, Ore., predicted that dealer chains would keep getting bigger and more powerful, and that someday the biggest dealer chains could even have their own "house brands," like national retailers and supermarket chains. He said manufacturers would be so hard up in an age of hypercompetition that they would pay dealers for the most desirable "shelf space" at the best dealerships, like packaged-goods manufacturers.

I don't think Tonkin envisioned then that GM and Chrysler would be laid as low as they are today, with both of them in U.S. Bankruptcy Court. For that matter, the track record is mixed for big dealer chains like Penske Automotive, AutoNation, Sonic Automotive and Asbury Automotive Group.

Economies of scale have been hard to achieve in auto retailing, in part because franchise laws mean Mom-and-Pop dealers pay the same unit price for new cars as the big chains. On the other hand, the big chains today make Tonkin's 14-store chain look tiny by comparison.

Penske, for instance, has 158 franchises in the United States and Puerto Rico, and 152 in other countries, mostly the United Kingdom.

In a way, Saturn is also Penske's second house brand, because Penske has the U.S. franchise for the Smart brand, which is built by Mercedes-Benz.

What's next? Canadian auto parts maker Magna International is the front-runner to buy GM's European operations. That would be the culmination of another long-term trend. While many auto parts makers have been going broke, a few of the biggest, most capable parts suppliers lke Magna have edged closer and closer to manufacturing their own car brands, but never quite crossed that line.

If Magna buys Opel and Vauxhall in Euope, that would be another huge symbolic change.