A Saab Story For GM?

SOUTHFIELD, Mich. November 28, 2002; Doron Levin writing for Bloomberg News filed this report.

As an adopted member of the General Motors Corp. family, Saab is finding it difficult to preserve its Swedish quirkiness and still fulfill GM's financial expectations.

Saab lost about $130.5 million in the first half of 2002.

Worse still, Saab has been the biggest component of General Motors's $420 million loss in Europe through the first three quarters of the year.

In response to an unattributed assertion in Automotive News that Saab's losses alone will balloon to $500 million for all of 2002, General Motors issued a bulletin to Saab dealers in the U.S. on Monday saying the losses are "not at all unexpected."

The brand became popular over the years by virtue of its turbo-powered engines and innovative safety features, such as headrests that reduce whiplash injuries. Its signature is the odd location of the ignition on the floor between the two front seats.

Saabs project a mysterious allure for architects, doctors, clergymen, professors and other brainy types, especially those who get a kick out of making an off-beat statement with their vehicle. More than 85 percent of the owners are college graduates, says the company, a higher proportion than owners of Audi, Mercedes-Benz, BMW or Volvo.

The Pedigree Danger

European brands like Saab, Volvo, Jaguar and others with small, loyal followings have been selling out to big automakers over the past two decades because they can't afford to develop new models. Acquirers like General Motors and Ford Motor Co. figure they can invest in new models more efficiently by using existing designs and parts.

The danger of expanding niche brands into mainstream brands is that buyers could regard Jaguars, Volvos, Saabs and others as having lost their distinctive pedigrees.

Saab engineers long ago designed the ignition on the floor to prevent passengers from cutting themselves on the key in a front-end collision. The position also is supposed to be more efficient, since the driver can start the car immediately after buckling the seatbelt.

If Saab's ignition were on the dashboard, it might as well be just another General Motors brand, like Opel or Chevrolet.

Saab's new 9-3 sedan, starting at $25,900, went on sale a few weeks ago; the new model and other 9-3 variations, including a convertible, are projected to double sales of the old 9-3. A larger sedan, the Saab 9-5, was introduced in 1998.

The new 9-3 is based on General Motors's Epsilon architecture, an undercarriage design used in the automaker's new Opel Vectra and planned for next-generation models of the Chevrolet Malibu, Pontiac Grand Am and others. Reviews of the 9-3 have been positive; the ignition (thankfully) remains in its usual, quirky location. Might Saab's character change in the future?

Losing Money

"When Saab was purely Swedish it used Swedish suppliers," said Michael Robinet, vice president of global forecasts for CSM Worldwide in Northville, Michigan. "With the Epsilon platform it makes sense for GM to switch to global suppliers."

The economies ought to be paying off financially for General Motors, though they aren't. Twelve years after it bought 50 percent of Saab for $700 million, the Swedish subsidiary is losing money. The Detroit-based automaker completed its acquisition of Saab in 2000 for $125 million.

The automaker also said it will announce a reorganization plan within a few weeks and intends to cut employment in Sweden, which stands at about 6,500. Last month General Motors sent two U.S. executives to company headquarters in Trollhattan as chief operating officer and chief financial officer.

By current automaking standards, 6,500 employees working for a company building 140,000 or so cars doesn't figure. The employment appears to be 30 percent or 40 percent larger than it should be.

Staying Swedish-ness

General Motors is investing more than ever on new Saab models "and is not yet reaping the returns because the new product has only just recently reached the marketplace," Debra Kelly-Ennis, president and chief operating officer of Saab Cars USA Inc., wrote Monday in a letter to reassure dealers.

To earn a "decent return" for General Motors, Saab must sell at least 200,000 vehicles worldwide, said Kevin Smith, a spokesman. The previous record for worldwide sales was 132,291 in 2000.

Whether there will be 200,000 Saab buyers depends, in part, on the competition. The 9-3 must compete against a rising tide of Mercedes C Class and BMW 3 series vehicles, as well as a host of Japanese models, such as the Lexus IS300.

Saab might wind up being the last brand to offer a car-SUV crossover, which is planned for 2004. Volvo, the other Swedish automaker and owned by Ford Motor Co., introduced its crossover, the XC90, this year.

General Motors believes a 50 percent increase in Saab sales is possible in the next five years. Reaching that goal won't be sufficient; the automaker also must reduce costs, as anticipated when it decided to acquire Saab.

Engineering and organizational redundancy is being targeted -- but the automaker understands it must find ways to do so without compromising Saab's distinctive Swedish-ness, a slip-up that could halt sales growth in its tracks.