General Motors (GM) said yesterday that it will close its Saturn division by next year after the sudden collapse of negotiations to sell the brand to Penske Automotive Group

GM was left stunned, as until Tuesday it was under the impression that the deal would go through, but yesterday afternoon, just a day before announcing that it had clinched the deal, Penske pulled out.

PAG, the second largest publicly traded automotive retailer in the US by revenue, called off the deal as it could not arrive at an agreement with a third party contract manufacturer to supply vehicles for the brand.

In a statement Michigan-based PAG said, ''Since announcing its discussions with GM on June 5, 2009, the company has been in the due diligence process to determine the feasibility of developing an independent distribution model for Saturn-branded products and service parts in the US, including the sourcing of vehicles from GM and other potential suppliers.

The company had negotiated a definitive agreement with GM to source vehicles on a contract-manufactured basis for a period of time. After this period, the company would have been required to source vehicles from another third party under a similar contract-manufacturing agreement.''

PAG said that the board of directors of a contract manufacturer with whom it had negotiated the terms and conditions of an agreement had rejected the agreement. It did not identify th emanufacturer.

''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 PAG.

GM, which was forced to sell the Saturn brand as part the US government-financed bankruptcy reorganisation, found a buyer for the brand in June, when businessman Roger Penske, owner of PAG and an Indy racing team, announced a tentative deal to acquire Saturn, subject to final negotiations.

Under the proposed deal with GM, the Detroit-based carmaker had agreed to supply Saturn with three vehicles, the Aura sedan, Outlook crossover vehicle and Vue sport utility vehicle, through 2011.

PAG had said that it would not go ahead with the deal until there was another contract manufacturer in place to supply the three vehicles after 2011.

''Today's disappointing news comes at a time when we'd hoped for a successful launch of the Saturn brand into a new chapter,'' GM's chief executive Fritz Henderson said in a statement. ''We will be working closely with our dealers to ensure Saturn customers are cared for as we transition them to other GM dealers in the months ahead.''

Saturn's 350 dealers across the US, who sell only Saturn brand vehicles and not other vehicles of GM, will have to close down due to the deal collapsing, thereby threatening 13,000 jobs.

Roger Penske, a former race-car driver has a reputation for turning troubled automobile companies around and is considered as one of the shrewdest businessman in the US automotive industry.

Analysts have said that, had Penske acquired the Saturn brand, he would have made a success of it, where GM, even with its massive infrastructure had failed.

Saturn is one of the four brands of GM. The Pontiac brand is due to close down by year end. In June, it sold the Saab brand to Swedish small luxury sports car manufacturer Koenigsegg, while it has a deal to sell the Hummer to Chinese road and construction equipment maker Sichuan Tengzhong Heavy Industrial Machinery Company.

Last month, GM announced the sale of its European brand, to Canadian parts maker Magna and Rusia's Sberbank combine.