The new deal for Saab

Saab 9-2 alongside Saab 21 Jet Source: Saab

We could all be excused for becoming confused over GM’s negotiations to sell its Saab subsidiary. In November 2009 the deal fell apart. On December 18th 2009, GM reported that the deal with Spyker had collapsed. On 2oth December Spyker tabled a new offer. By January 26th 2010 a deal had been agreed. Spyker will buy the car-maker for $400MN: $74MN in cash and $326MN in preference shares. The deal isn’t quite done: Spyker have to negotiate acquisition of the oustanding shares in Saab (GB) Ltd. Welcomed by dealers, employees and loyal customers, the loss to GM on its investment in Saab has been sizeable. The company paid $725MN in 1989, equivalent to $1.3BN today and during the GM ownership period Saab racked up large operating losses in most years. 2009 is estimated at $-400MN and 2008 at $-300MN. So, why did GM take so long to get a deal together? While much was made of GM’s reluctance to do business with banker Vladimir Antonov, GM heard allegations he has ‘mafia’ connections, the real stumbling block was to find a buyer strong enough to raise the finance and turn-around the brand, but weak enough not to be a future threat. GM recognises that the EU and US markets may take years to recover and the market growth will be in China and Russia, where Opel-based products will be especially attractive. It needed to ensure that no Russian or Chinese manufacturer will get their hands on current technology. Hence all the twists and turns. GM’s immediate fear is that the technology in the new Saab 9-5, a major rival to the Opel Insignia, and planned future models, such as the 2011 9-4x, sharing engines and a platform with the 2010 Cadillac SRX, could end up in the hands of a strong rival. The 9-5 was designed wholly by GM and is based on the automaker’s Epsilon II architecture. According to Sweden’s Expressen, GM engineers said that the new Saab maybe even better than the related Opel Insignia, which was recently named ‘European Car of the Year’ . Leaving aside great products, Saab may only have a modest chance of sustained financial success, so the new owners face an uphill struggle to secure funding: car building is incredibly capital-intensive, even in good times. A ‘catch 22’ for Spyker is that they need the Swedish government to secure its $574MN EIB loan but part of the the price will be maintaining production at Trollhatten, locking them into the high cost of doing business and building cars in Sweden. Saab sold 133,000 cars globally in 2006, its peak in recent years (36,349 in the U.S.), while its Trollhattan factory has capacity for about 250,000 per year, a 53% utilization rate, when most analysts recognize car-makers need 80% to break-even. In 2009 Saab sold less than 40,000 cars world-wide. In addition to being a potential cash drain, Saab’s brand is a conundrum. Its passionate customer base consists of buyers who want something different and don’twant to see their cars as ‘mass market’. That probably means selling 200,000 cars a year, but less than, say, ½% in any single market. And the market landscape has moved on during GM’s tenure: Saab has lost much of its unique selling proposition as competitors, from Kia to VW, switch to the turbocharged four-cylinder configuration that has been the Swedish automaker’s signature for years. GM tried to grow Saab by making it a semi-premium brand; an individualistic mass market product, sharing platforms with Opels and other brands. Although the cars still demonstrated passion and performance, that brand positioning failed. Spyker have to find another one. Early in January 2010, the Spyker CEO, Victor Muller said that he wanted to rebuild Saab around the 9-3, 2010 9-5 and the 2011 9-4X. He doesn’t see Saab going into a smaller car segment, producing a 9-1, for example. But he was enthusiastic about a Saab Aero-X, which he describes as ‘One of the best designs in the last five years’.

The winding down of Saab dealerships would also stop, with Spyker retaining the existing dealerships instead of cutting numbers significantly as had been planned. Muller also made it clear that he sees some Saab showrooms selling Spyker cars in the future, which is an interesting prospect. They are currently sold in a variety of ways, often through or Lamborghini dealers. GM will profit from any potential turn-around as the current cars are all based on GM platforms, and the 2011 Saab 9-4X not only shares powertrain with the Cadillac SRX, but would be made by GM in Mexico. But, is this plan viable? Not according to ex Saab and GM marketing executive Steve Rossi. “The only way a company like Saab could ever prosper is if it became a boutique brand,” Rossi said. But Saab is not a boutique brand. After 20 years under GM’s wing, it not only doesn’t have much identity, it is basically an empty vessel. Rossi said, “It is stripped out, a shell of a functioning enterprise. Warranty claims, for example, were handled by a GM employee on Friday afternoons.” Legal and human resources were also handled by GM, which treated the company as a dumping ground for its parts bin. Two newer cars were Saabs in name only: the 9-2 (“Saab-aru”) was Subaru-based, and the 9-7 (“Troll- Blazer”) a spinoff of the Chevrolet Trailblazer. Older tooling is being sold off to the Chinese.

Consumers have all but abandoned Saab. The name that once stood for engineering excellence is now languishing last in the J.D. Power and Associates Customer Retention Study, with just nine percent loyalty. The next-worst brand name is Suzuki, and even that has 24 percent loyalty. Spyker may have completed the rescue phase; the turn-around may take much longer and will depend heavily on GM’s willingness to allow Saab to build on its future platforms and developments.