(Updates comment from dealers, other details.)

By Sharon Terlep and John Stoll

Of DOW JONES

General Motors Co. said Wednesday that it would wind down its loss-making Saturn brand after the last-minute collapse of plans to sell the niche brand to Penske Automotive Group Inc. (PAG).

Penske, which runs a network of U.S. auto dealers, said a deal to source cars for sale under the Saturn brand after GM ceased production had been rejected by its prospective manufacturing partner, which people familiar with the situation identified as Renault SA (RNO.FR).

"We were running 300 miles an hour about three hours ago to get to get this done, and then we hit a wall," GM spokesman John McDonald said. "This is disappointing."

Roger Penske, the former race-car driver who heads the group, had pursued what the industry viewed as a bold experiment in outsourcing manufacturing.

Without the deal, the line GM launched 19 years ago as a way to fend off competition from Asian imports will end no later than October 2010.

The collapse is a setback as well for Penske, who had hoped to expand his auto empire. Under the arrangement, he was to buy Saturn's brands, service and parts and distribution operations, but not its manufacturing operations.

Shares in Penske were down 10% recently in after-hours trading at $17.27.

Saturn will wind down by October 2010 under agreements already made with the brand's dealers. Had the Penske deal gone through, the dealers would have needed to ink new contracts with Penske to stay in business. GM's McDonald said many of the dealerships are expected to close before next year's deadline.

Saturn is one of four brands - alongside Saab, Hummer and Pontiac - earmarked for closure or disposal in GM's post-bankruptcy restructuring plan. The company is in talks to sell Saab and Hummer, and also is winding down Pontiac. GM said earlier this year that the Saturn, Hummer and Saab brands generated an average annual pretax loss of $1.1 billion.

GM said existing Saturn owners would be able to have their vehicles serviced at GM dealers.

People familiar with the situation said a deal had been due to be announced as soon as Thursday, and Penske had already distributed new franchise agreements to dealers. The chance of another manufacturer stepping in is "remote," a person familiar with the situation said.

No 'Plan B'

The Penske announcement came as a "huge surprise" to dealers, GM and Treasury Department officials, all of whom were watching developments closely, according to people familiar with the matter. "We're out of luck," one dealer said. "I don't think there is a Plan B."

Saturn of Oak Lawn, Ill., sales manager Marty Mollway said the dealer was disappointed by the news. "I don't know where this puts us. I don't know where we go from here."

Scott Davies, owner of Saturn of Wichita, Kan., said as of late Wednesday afternoon he hadn't been contacted by Saturn or Penske. "We'll just have to deal with it."

Up until earlier Wednesday, Saturn dealers were being told that the sale of the unit would be complete "in the next few days," a person familiar with the matter said. These dealers were asked to rush to complete several initiatives needed for the closing, including submitting customer-service information and inventory data.

The proposed deal called for Penske to initially acquire vehicles from GM but eventually branch out to sell products from Renault SA and its Samsung Motors unit, which is based in South Korea.

Penske Auto said Wednesday that it negotiated a supply agreement with "another manufacturer," but that company's board rejected the deal.

"Without that agreement, the company has determined that the risks and uncertainties related to the availability of future products prohibit the company from moving forward with this transaction," said Penske Auto.

Renault couldn't immediately be reached for comment.

Saturn has 350 dealers and the Penske deal was seen saving some 13,000 jobs. The dealers had pressed GM to seek a sale after the auto maker initially planned to phase out production.

-By Sharon Terlep and John Stoll, 248-204-5532; sharon.terlep@dowjones.com (Doug Cameron and Kevin Kingsbury contributed to this article).