Does Saturn Have a Future?

It's nearing decision time for Saturn.

Insiders tell Ward's the decision will be made by the government and not necessarily GM executives. Apparently, the question is whether to sell Saturn and allow it to become a potentially viable competitor to GM. According to several Saturn dealers, the real question is whether President Obama's administration will act with a capitalistic or socialist mindset.

For Saturn, there are a number of bids on the table, but are they realistic?

Sources say it's a process of elimination, based on criteria necessary for the brand to succeed. Working through the list narrows the field of realistic suitors significantly and leaves the Renault-Nissan Alliance as Saturn's best hope for survival.

Here are the reasons. First and foremost, the winning suiter likely has to be an auto maker, which could make last week's offer from the Oklahoma-based private-equity group Black Oak Partners a non-starter. That's not to say a Black Oak or some other private-equity group won't have a significant role, but the deal will have to be married to a manufacturer in some way.

Saturn has vehicles guaranteed from GM through 2011, unless something drastic changes in the next few weeks. For it to continue beyond that time, the brand needs an ironclad agreement, not a potential promise, with an auto maker that makes it the distribution network for its vehicles.

Without such an agreement, Saturn dealers are existing on a wing, a prayer and crossed fingers.

Obviously, Saturn's potential partner will not be a domestic auto maker, again narrowing the field. We also can eliminate brands such as BMW, Daimler, Toyota and Honda. Acquiring Saturn doesn't fit their strategies.

A partnership with a Chinese or Indian manufacturer has been bandied about. But the two most likely Indian auto makers can be ruled out; Tata has its hands full right now in India (although it plans to start sell its low-cost Nano in the U.S. in 2013), while Mahindra already has a distribution strategy and several dealers in the U.S. who are waiting for vehicles.

A Chinese firm might make sense, but a primary obstacles is that Chinese vehicles still are three to five years away from being ready for the U.S. market.

However, there reportedly are some well-funded venture-capital groups with ties to China that might be able to put a deal together. And we're told there are Saturn dealers who are hoping for this scenario. Still, China is a dark horse.

So what does that leave? Possibly the best fit for Saturn would be a tie-up with Renault, Nissan's partner. The French auto maker has been eyeing a return to the U.S. and distributing vehicles through the Nissan network might not make sense.

Renault has its challenges — primarily financial at the moment. The auto maker indicated in February its focus in 2009 is on maintaining a positive cash flow. But is has $3.8 billion in debt needed to pay down relatively soon and making a costly acquisition doesn't exactly fit that strategy.

Still, the investment would be somewhat minimal — likely hundreds of millions of dollars, not billions — because it would be buying a retail network, not manufacturing plants.

Renault-Nissan Chairman Carlos Ghosn has made no secret of wanting to add a U.S. component to his Asian-European alliance but seems to have tabled any hopes of that because of the current global financial crisis. Would he settle for a deal with Saturn? Perhaps.

Saturn provides a ready-made distribution network that has a great reputation and phenomenal facilities. And Renault vehicles likely could be ready by 2011, when Saturn stops receiving GM vehicles.

In return, Saturn gets a partnership with a credible manufacturer that needs access to the U.S. market. Just as important, Saturn likely would have access to Nissan's captive finance arm which means access to floorplan and consumer financing — something a private-equity group likely can't provide.

There are several details to be worked out, such as which Renault vehicles would come to the U.S., and whether they would be badged Saturn or Renault.

A Renault partnership is a long shot, but perhaps it is the best one Saturn has. The question is whether President Obama would allow Saturn the opportunity.