A brighter future for Saab?

09Jun09

The automotive industry has been slowly realising the need to put its house in order.

Issues such as:

– state funding
– poor product quality (particularly amongst American brands)
– environmental concerns
– the disconnect between brand manufacturer and dealer service
– increased taxation
– credit funding constraints

In a sense the recession is acting as an accelerant, speeding the change, or demise, of weak automotive brands.

Last week GM announced the sale of its Hummer and Saturn brands, and its European operations are being demerged into a separate group centred around Opel in Germany.

But the one GM asset I have a personal interest in is Saab. Saab is a premium brand that represents a difference in attitude and style from the German counterpoints (Audi, BMW and Mercedes), because of its drivers more than its advertising. While I’m not one to regularly quote Jeremy Clarkson, he has commented ‘Saab’s are the best driven cars on the road. Their drivers just aren’t like BMW owners.’

Saab 9-3

Saab 9-3

Having survived a multi-car motorway pile-up last February, when a lorry drove into the back of a queue of 4 stationary cars. I am able to endorse the level of protection offered by the Saab 9-3 in a crash. All 4 cars were written off, but my experience as a live crash-test dummy in the Saab left me able to walk away virtually unscathed. The drivers of the other cars weren’t so lucky and the nearest ER was kept busy that day.

If you are able to put up with the occasional jibe that all Saab owners think they are fighter pilots, which perhaps reveals more about the age of the person criticising than it says about the Saab owner; then the Saab driving seat is a fine place to be. Unless perhaps you are GM.

Originally buying half of its shares in 1990 and taking full control of Saab in 2000, GM have now received 3 offers for the insolvent Swedish brand, and will choose a preferred bidder by the end of this week.

The nature of the sale is unusual and complex, as it includes clauses that continue to ensure GM share engine and parts technology under service agreements. This is interesting as GM has done little to expand the very narrow product range Saab manufacture over the last 19 years. With the most emission friendly turbo diesel engine unit originating from Fiat and also found in Alfa Romeo 159’s.

The 3 bidders are believed to be:

– Koenigsegg – the Swedish supercar maker who sold 18 cars at around $1.6m each last year
– Renco – a private equity holding that bought and turned around AM General – who manufacture the Humvee military vehicle
– Merbanco, a private group of investors from Wyoming State

GM, which has filed for bankruptcy protection in the US, has made a provision, contributing $500m in cash and assets to finance the spin-off of Saab. None of the bidders are expected to match this level of investment to gain ownership control.

As well as holding cash worth around $150m in the bank, Saab is also in position to launch new cars.
– the new 9-3x (an estate /off-road crossover that is arriving possibly 5-10 years after market demand peaked for these vehicles)
– the new 9-5 (the outgoing model is no longer competitive, so this is a welcome step).

However Saab haven’t updated the 9-3 and still don’t have either a small car or an electric/hybrid vehicle. So the sales volume in the current recession is unlikely to even reach the 98,000 units sold last year, let alone the 133,000 units sold at Saab’s volume peak back in 2006.

Back in 2005/2006 the arrival of the more efficient Fiat diesel engine and increased dealerships supported this relative sales boom. But technology has moved on, with BMW and some Audi engines offering significantly lower emissions and higher resale value; appealing to company car tax payers and also improving leasing prices.

The contractual negotiations around the continuing supply of GM engine and parts technology isn’t necessarily what will help Saab in the future, as new and better units are needed.

Although continuing support for the current vehicles is clearly an important part of the sale during this transition. The GM sourced electrical systems and some engines haven’t always proven themselves reliable in the Swedish premium cars. I encountered 3 electrical faults and 2 engine faults in the 2 years I owned a 9-3. But I was driving around 20,000 miles a year at the time.

Saab filed for insolvency in February and has been undergoing reorganisation. It has reportedly cut its workforce by 700 down to 3,400, and has asked a judge to approve the reduction of its debts by 75%. GM is the largest Saab creditor, followed by the Swedish government.

Personally I believe Saab has a viable future with the introduction of appropriate funding, product development, distribution and marketing. However this may require a $1bn investment in an industry that is possibly looking to radically cut costs and sell old as new, rather than innovate, at this time.

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One Response to “A brighter future for Saab?”

  1. 1 Jens-U. Marquardt

    GM sollte einfach gut darüber nachdenken, ob es wirklich für sie wichtige Gründe
    gibt, sich gegen den Verkauf von Saab zu sperren. Oder spart es Geld? Kaum! Der Verkauf brächte schnell Liquidität; weiterer “Teilausverkauf” bringt mit Sicherheit weniger in die Kasse! Eine geordnete Abwicklung kostet hingegen, neben viel Zeit und einem immensen Einsatz von personellen Ressourcen, noch viel, viel mehr Kohle.
    Außerdem erfährt GM in weiten Kreisen, rund um den Globus, wenn sie Saab sterben lassen, einen ganz empfindlichen Sympathie- und Imageverlust.
    Der Tod von Saab wäre ein herber Verlust…
    Jens-U. M.


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