Saab Files Bankruptcy; Will Separate Itself From GM

It’s official: Saab has declared bankruptcy and is working towards separating itself from General Motors (GM).

From the NY Times:

Saab, the Swedish automaker owned by General Motors , filed for bankruptcy protection Friday and asked the Swedish government for help in making it an independent car company again…

…Saab went to a Swedish court for protection from its creditors, and said the company would - with assistance from the Swedish government - reorganize to pave the way for private investors to buy all or part of the company.

“We explored and will continue to explore all available options for funding and/or selling Saab, and it was determined a formal reorganization would be the best way to create a truly independent entity that is ready for investment,” the managing director of Saab, Jan-Ake Jonsson, said in a statement.

Saab also said that the company “would continue to operate as usual.”

But government assistance is not a certainty. Swedish officials have repeatedly resisted efforts to nationalize Saab, which came to life as part of the Svenska Aeroplan AB, a company founded in 1937 to build military planes. The first Saab cars were built after World War II. G.M. has used the slogan, “Born From Jets” in its recent advertisements for the Swedish brand, although its most recent ad campaign features the tagline, “Move Your Mind.”

Swedish government officials seemed Friday to rule out financial assistance as part of what Saab said would be a three-month process of retrenchment.

“Support in the form of money is not on the agenda,” a spokesman for the industry ministry, Hakan Lind said, according to Reuters. Without assistance, Saab would need to find a buyer.

Saab lost about 3 billion Swedish crowns, or $343 million, in 2008 and said it would lose a similar amount this year. It has about 4,000 employees in Sweden

G.M. executives have struggled to make a profit on Saab almost from the start. It bought Saab in the wake of Ford Motor ’s purchase of the British luxury carmaker, Jaguar, and once considered selling the cars alongside those in its Saturn division.

Saab, long known for quirky looking cars with an ignition in the floor and a griffin insignia, became a more conventional brand under G.M. It borrowed the underpinnings from some of G.M.’s Opel cars for its lineup , which includes sedans, wagons and a Sport utility vehicle.

…Saab is G.M.’s worst-selling brand in the United States, selling 21,383 vehicles in 2008, down 34.7 percent from 2007. Its best-selling vehicle is the 9-3, of which G.M. sold just over 10,000 cars last year.”

Separating itself from GM is exactly what Saab needs to do in order to regain its former glory and win some of its former customers back, many of whom believe that Saab stopped being Saab when GM took over and began building the cars from the Opel spare parts bin.  All you have to do is perform a quick Google search and you can find many a fan site that celebrates the old Saabs and lament the latter day models. The fact that GM once considered selling Saabs alongside Saturn more or less sums up the fact that GM simply didn’t understand the Saab brand, let alone know how to manage it properly.

While it’s not a given that an independent Saab can win back some of its old customers, removing GM’s influence is good first step.

If Saab is able to successfully navigate its restructuring and emerge as an independent company I think the company can definitely make a comeback. The current generation 9-3 (especially the 280HP AWD Aero variant) is a vast improvement over previous models, and is arguably the company’s first legitimate contender in the premium sports sedan category in some time. While I wouldn’t choose it over an Audi or a BMW, I do think it’s a more of a driver’s car than an Acura TSX, TL or the Lexus ES.

The new 9-5 looks to be more of the same, and should give the company two cars that are legitimate contenders in their respective categories.

That being said the company has some rather significant challenges ahead of it:

Saab dealerships are dropping like flies. The dealership I test drove a 9-3 at this past summer closed about a month or so later, and at the moment I’m not sure if there are any remaining dealerships left in the Seattle area. It’s a similar situation in other parts of the country, with many metro areas no longer having any Saab dealerships left.

Mindshare: people who are currently shopping for sports sedans within the entry-level luxury/premium segment don’t usually think of Saab, instead they’re considering the usual suspects: Audi, BMW, Infiniti and Lexus, not to mention offerings from Volvo and Acura. Saab’s challenge will not only be to produce great cars, but to get people into the dealerships to test drive them in the first place.

A lack of mindshare coupled with a rapidly shrinking dealership network make for a very difficult road ahead for Saab.

The key(s) to Saabs survival are to first separate itself from GM, and then to find a partner who can provide manufacturing/engineering assistance, in addition to a dealership network that the company can leverage to rebuild itself. An newly independent Saab that is still building cars from Opel spare parts is just more of the same, even if the company is better able to manage the brand without GM’s influence.

As I mentioned earlier I really like VW as a potential partner because Saabs that share parts with Audis and VWs will definitely make many customers feel more confident, and leveraging the existing Audi/VW dealership networks to sell Saabs makes a lot of sense. Furthermore I think that VW would prove to be better brand managers than the crew at GM, who are barely able to avoid destroying their own home grown brands.

You can read more here.

Source:

The NY Times : “Saab Moves to Separate Itself From G.M.” — Carter Dougherty, Micheline Maynard, February 20, 2009.

Disclosure: at the time of publishing the author didn’t own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn’t be viewed as financial or investment advice.

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