SAAB loosing money and identity
Volvo, rumored to be for sale by its owner, the Ford Motor Company, is making money.
But the other Swedish automaker, Saab, owned by General Motors, is not.
Saab lost about $446 million last year and has just announced that it will lose money this year, too. General Motors has been forced to invest about $600 million into Saab’s operations as a consequence.
According to Jan-Ake Jonsson, the Saab Chief Executive Officer, the problem has been a lack of models – insufficient variety.
Because the Saab line has been concentrated in only a few models, the assembly plants have been running well below capacity, a very inefficient and expensive way to make cars. Nonetheless, according to Jonsson, "GM has a very positive view of Saab. We are their only global marque and the premium segment is growing in importance.”
But Saab is not Volvo and it has neither a widely held popular image nor deep penetration in any market other, perhaps, than Sweden. Volvo is renowned for safety and, by virtue of that, quality of construction, This has enabled Volvo to position itself as a somewhat more sensible, slightly less expensive alternative to the German marques, BMW, Audi, and Mercedes-Benz.
In contrast, Saab’s reputation was always for being different. Other than Citroen, no company was better known for its quirks, such as putting the ignition key on the floor, than Saab. Saab had a legendary rally history, but the company did nothing to build on and that now was so long ago that it’s ancient history.
Moreover, GM’s efforts to broaden the Saab brand’s appeal have not created a distinct image for the car. Nameplating platforms developed elsewhere as Saabs – most notably with the quickie effort to give Saab an SUV that the company’s management didn’t really want – have degraded the entire line. That is a mistake Ford did not make with Volvo.
Mr. Jonsson must, of course, be a cheerleader for his company.
But he’s dead wrong when he says that Saab is GM’s only “global marque.” GM’s real “global marque” is Opel. It is a presence in Europe and it is quite obvious that GM has concluded that what Opel makes is what Saturn should sell. If, on the other hand, Mr. Jonsson means more by “global” than just the U.S. and Western Europe, then he’s banking on China to be the real emerging market for Saab. GM does sell the brand in China. So, the brand has a toehold there. But the action in China in the future will be in vehicles designed, engineered, and produced there. GM has made it clear that it intends Buick, not Saab, to be the GM China car.
The confidence Jonsson believes GM has in his brand seems more likely to be resignation.
Certainly, GM is stuck with Saab. With Volvo for sale, why would anyone be interested in buying Saab? On the other hand, there is little reason for GM to invest the massive sums in Saab that would probably be required to make that brand truly a player in any market. In Europe, GM already has Opel. In China, GM is putting its eggs in the Buick basket. In the United States and Western Europe, the real “premium brand” cars, the German cars, are all going heavy into the small car market – the 1 Series being the best example of the emerging breed. There is just no chance that GM is going to finance a Saab entry into that market segment, even if they could. They can get a better return on their money elsewhere, particularly because they would have to establish a brand identity for Saab first.
Which means that the future of Saab is further dilution of the brand’ s identity, or what’s left of it, as GM provides it more platforms from other elements of the empire, each one detracting more from the concept of a Saab as unique.
Saab really has nothing about which to complain.
Without GM, Saab would not have survived to this day.
But GM had no good reason for buying Saab and, once it had done so, had no idea what to do with it.
That’s because there is no business case to be made for the company.
There is an odd principle of macroeconomics which says that a company can lose money almost forever, with no chance of ever turning a profit, and still stay in business. The reason is that there are costs associated with completely folding a company: paying off pensions, buying out distributors, ending contracts, cleaning up environmental sites, etc. All of those costs are avoided, so long as the business remains afloat. Moreover, to the extent the business is in debt, it will continue to have access to borrowed funds, even though it is losing money, because its lenders do not want to have to classify its loans as liabilities, rather than assets.
That’s where Saab is.
GM will funnel enough into Saab to keep it going. It’s cheaper that way. But Saab can only survive at GM as a nameplate, not as an independent car line.
Which will enable GM, over time, to close down all of it’s manufacturing capacity and, eventually, over time, write off the entire brand.
That’s the future for Saab.