Published on December 28th, 2011 | by Jeffrey Zygmont6
General Motors vs Saab: Why after the world laid Saab to rest, GM finished the job
Saab plunged into bankruptcy six days before Christmas 2011, and General Motors took the blame. But Saab’s departure was inevitable under any circumstances. Rather than GM, the culprit is simple economics: the brand’s own failure to win enough customers to pay its bills.
Saab stopped making cars earlier in 2011, and for the balance of the year tried to claw out of a coffin. Aspiring Chinese companies made offers to buy the Swedish carmaker, putting up the cash Saab said it needed to stay alive. But GM blocked the deals. Thus the big American auto company comes out of tiny Saab’s failure looking like a bad guy and a bully.
GM’s explanation for its refusal points to one clear motive: it didn’t want to aid and enable competitors.
Nothing personal, Saab, but you’re not the rival GM was worried about. Saab may be admired by car enthusiasts, and it may retain the rabid following of a few true believers, but to the other 99.8 percent of the world’s population, the company had grown to insignificance. Therefore the Saab name and its facilities in Trollhattan, Sweden, aren’t worth much of anything.
Saab’s most valuable assets appear to be car parts it was getting from GM, under agreements left over from the two decades in which General Motors owned Saab. Although GM sold Saab in 2010, it still supplied engines and powertrain components for the Saab 9-3 and 9-5, and GM built the 9-4X wagon at a Mexican plant. Its contracts and lingering tie-ups give GM effective veto power over a change of ownership at Saab.
Any new owner would get the technology GM supplies, which presumably would enable the acquiring company to make more desirable automobiles. GM didn’t want to set up a rival that potentially could steal some of its sales in China, which is GM’s second largest market behind the U.S.
GM’s official, three-sentence explanation for scuttling the last Chinese bid to buy Saab states that the transfer of control “would be detrimental to GM and its shareholders. As such, GM cannot support” the deal.
James Cain, manager of financial news for GM, said that the company refused to cede “core engineering data that is the accumulated learning of decades.”
“There was a lot of concern that a company in distress would seek any partner in order to survive. We were very concerned about there being a change of control, and losing control of intellectual property and other assets that we own that were licensed to Saab,” Cain explained.
He confirmed that Chinese sales were GM’s primary worry, but that international markets were also a concern. As if in consolation to Saab, Cain noted that “we were very clear and very honest and very consistent in our discussions with Saab and all the stake holders as soon as this proposed sale surfaced.”
The last buyout offer, ending with Saab’s Dec. 19, 2011 bankruptcy filing, came from Zhejiang Youngman Lotus Automobile Co. of China. Youngman had also been part of an earlier, two-party buyout offer from China, which GM also vetoed.
Details about the transfers from GM to Saab are guarded as company secrets. But based on what’s seen on the surface, car-industry analyst Ron Harbour doesn’t consider them worth guarding.
“None of us would know, but I’m hard pressed to see what technology they’re talking about,” said Harbour, developer of the influential Harbour Report on car manufacturing, and a partner in the North American automotive practice of Oliver Wyman, an international business consultancy.
Still, Harbour thinks GM’s misstep was its past handling of Saab, rather than its decision to block its acquisition today. Even for a premium brand, Saab has remained too small to make it as an independent, he said.
In 2006 Saab reached its highest-ever sales level of about 133,000 cars. But by 2008 its sales had sunk to under 95,000.
Given the high price of car manufacturing and the cost burdens of corporate overhead, “it’s absolutely impossible for them to survive on their own,” said Harbour. Saab’s best chance passed about a decade ago, when then-owner GM failed to tie it closely with its European manufacturing and business operations. That would have cut the brand’s operating expenses substantially, he said.
“If they would have fully integrated it into the GM system, they could have had a chance. But they kept it stand-alone,” Harbour stated.
The analyst doubts that any white knight will rescue Saab now. Its name, engineering know-how, and celebrated manufacturing plant in Trollhattan aren’t attractive enough in a world already awash with too much car-making capacity.
“The industry has too many plants, too many brands, too much of everything. There’s nothing unique about Saab as a brand that would attract anybody to pick it up,” Harbour said. “The last thing any company wants is another plant in Western Europe, where there’s so many regulations and the labor costs are so high.”
He concluded, “I’m surprised it’s lasted this long.”
General Motors bought a 50-percent stake in Saab in 1990, then purchased full ownership in 2000. It was ready to shut down the Swedish auto company as a consequence of GM’s own bankruptcy in 2009. But GM relented, reportedly under pressure from governments in Europe, selling Saab to the small, specialty carmaker Spyker in 2010. Spyker later renamed itself Swedish Automobile.
But the new owner couldn’t make a go of it either, writing off Saab as a money loser and leaving it essentially orphaned. Little mean was left on the bones the Chinese companies sought to acquire late in 2011.
The Wall Street Journal published an account of the GM-Saab relationship on December 20. The newspaper treated the bankruptcy as B-section news, placing the article “Saab Automobile, 1950-2011” at the bottom of the front page of its Marketplace section.
Saab started manufacturing planes for the Swedish air force in 1937. It introduced its first automobile in 1950. But the company’s more recent history as money sink is widely known.
“Saab was in a loss-making position for most of the last 20 years, even before they were acquired by General Motors,” summarized GM’s Cain. “The culmination of events in 2010 and 2011 put them into deep distress.”
GM was acting out of reasonable self-interest when scuttling the Chinese rescue attempts. But in a broader sense, GM was just the final agent in an inevitable process that began much earlier.