SAAB – Now What?
By Brendan Moore
As you may have read, Saab’s slow death rattle was halted last Friday. Two small Chinese firms, Pang Da and Youngman, offered again to purchase Saab from the floundering Swedish Automobile, a company born from the ashes of the GM abandonment, Spyker’s purchase of Saab, and then, the subsequent divesture of the Spyker supercar part of the business.
The time, Swedish Automobile said yes to the acquisition, staving off what would have been certain liquidation of Saab. So, it now looks like Pang Da Automobile Trade Co. and Zhejiang Youngman Lotus Automobile Co. will probably be the proud new owners of Saab, and all for the laughably low price of $142 million USD.
I say, “probably”, because there will have to be a few other sign-offs on the deal, and all of those signatures must be in place by November 15, or Saab is back on the road to court-ordered liquidation. The government of Sweden and the EIB (European Investment Bank) are major creditors and they will need to approve the deal. General Motors, Saab’s former master, is a creditor, major supplier and a major stockholder (with preferred shares) all at the same time, so their signature is also needed. Lastly, but hardly least, the Chinese government has to approve the deal, which is no mere formality – it may be problematic.
How much of a problem? Hard to say, but the Chinese government has put the brakes on a couple of auto acquisitions in the recent past; the attempted purchase of Saab by Hawtie Motor Group, an SUV manufacturer, in May of this year, and, Sichuan Tengzhong Heavy Industrial Machinery’s play for GM’s Hummer brand in 2010, which frankly looked like a slam-dunk when it was initially announced.
Beijing has a rigid pricing matrix that they use to determine the viability of any overseas acquisition and since the exact formula used in determining the correct price/value ratio is known only to the Chinese authorities, outsiders can only speculate as to the deal’s chances. However, a statement on November 1 from the Minister of Industry and Information Technology, Miao Wei, said that the government supports the acquisition of Saab “in principle”. Reading the few tea leaves we have available here, I’d say that is certainly a positive sign.
And what if the deal does go through?
Pang Da and Youngman plan to invest half a billion euros ($709 million) into Saab, according to documents submitted to a Swedish court overseeing Saab’s reconstruction. The new owners will pay off all monies owed, restart production next year, reduce labor costs by 15% (around 520 employees), launch new models and sell up to 55,000 units in 2012. The forecast is for Saab to sell as many as 205,000 units per year on a long-term basis, and for Saab to be profitable again by 2014.
Saab sold a little fewer than 32,000 vehicles worldwide in 2010, but halted production in April of this year. The only new Saabs that have been produced in the past several months have been Saab 9-4X crossover models manufactured by GM in Mexico on behalf of Saab through a supplier agreement. A lack of production and uncertainty over the future of the company have sent sales into a freefall; as an example, Saab sold only 429 vehicles in September in the U.S., and only 337 vehicles in October.
The new owners intend to keep the manufacturing facility in Sweden, and, add production capability in China to supply the previously untapped Chinese market.
Victor Muller, the charismatic but quixotic CEO of Saab, who desperately wanted to be Saab’s saviour, will remain on in what amounts to an advisory role until the new owners find a new CEO. Saab’s production and purchasing chief, Gunnar Brunius, bailed out today, announcing his resignation after 30 years with the company. There will no doubt be some more defections in the future.
According to those close to the deal, the new prospective Chinese owners are not interested in short-term gain, but rather, a long-term investment and growth strategy. This is identical to what the Chinese owners (Geely) of Volvo, the other Swedish car company, have espoused since their deal was consummated a year ago.
Now, on to the bonus round, at least for us and our readers.
The big question is: Does Saab’s previous turnaround strategy change? Should it change?
Just as a reminder, Saab’s previous turnaround strategy consisted of:
- Getting back their “Saabness” – they wanted to make their cars as unique of an offering on the market as they used to be
- Reducing costs so that their break-even point on volume was lower
- Bring out new models, including a B-Class car
- With the new models, move up in the price segment hierarchy where the margins are better on a per-vehicle basis
- Increase their geographic footprint from a sales perspective
Regarding the first action item in that strategy, my guess is that getting their quirky Swedish Saabness back is probably going to be a little harder with Chinese owners. But, maybe not. Maybe the new owners will plunge themselves and their new company into all things Swedish.
Number 2? That is quite possible.
Numbers 3 and 4? Boy, it’s a tough task just to get new vehicles done and out the door for a small auto manufacturer. Then, after they’re out the door, people have to like those vehicles and buy them. Huge undertaking for a niche vehicle manufacturer.
Obviously, the possibility of selling Saabs in a big new market like China (courtesy of the new would-be owners) is only good news for the fifth item in that strategic plan, but those sales won’t show up for years. There will be some lag between deciding to sell cars in China and actually doing it, and an even longer lag between deciding to make cars in China and actually doing it.
From my perspective, the turnaround plan can still be executed, as long as the new owners of Saab have patience and enough capital to stick it out as the company sails through the seas of red ink on their way to dry land and profitability.
Here’s wishing for approval of the deal, and a subsequent rebirth of this offbeat little car company.
Brendan Moore is a Principal Consultant with Cedar Point Consulting, a management consulting practice based in the Washington, DC area, where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com