GM offloads Saab - finally.

By David Bailey on Aug 18, 09 09:58 PM in Automotive

Whilst GM and Saab's prospective bidder Koenigsegg reached an outline agreement over the sale back in June, talks dragged on over the latter's financial muscle. This appears to be now resolved, with the two parties agreeing a deal. The handover of Saab may even take place before the end of the year.

Yet it's an odd coupling. Koenigsegg was set up in the mid 1990s by the Swedish businessman Christian von Koenigsegg. It employs just 40-odd people, and - as Top Gear viewers will know - makes just 18 superfast sports cars a year that sell for over a €1 million a car.

Saab, meanwhile, employs around 3,500 people in Sweden and sold around 93,000 cars last year. It has been on a downward trajectory under GM ownership, with sales sliding and the marque tarnished by bland GM platforms which have knocked the sheen off a once proud, sporty brand.

Sadly, the operation has highlighted all that was wrong with platform sharing. Indeed, last year it sold fewer cars than MG Rover did in its last year of operation, such has been the firm's downturn.

Koenigsegg said its wants to transform Saab into a stand-alone, vibrant, entrepreneurial company and make it "sustainable by making it profitable". That will mean having to shift the brand up-market and repositioning Saab as a niche brand. That all depends on the quality of the products of course.

Saab and Koenigsegg reckon it can break even at 100,000 units by 2012. That may be doable in the short run as Saab - unlike MG Rover back in 2000 - has a range of new models about to be launched which will buy it some time.

Yet longer term it needs to develop new models and it's not clear how Koenigsegg will actually do this on limited volumes given the R&D costs involved in new model development unless Saab shifts upmarket considerably and/or it finds a partner to develop models jointly.

This is my own hunch but given the GM links here, Saab and Shanghai could usefully team up - with possible benefits in developing joint Saab and MG models. Indeed, as the AR-Online website reported recently, it is rumoured that Shanghai is giving 'serious consideration' to adopting GM's Epsilon II platform for the MG 7/ Roewe 750 replacements.

This platform underpins both the Opel/Vauxhall Insignia and Shanghai's Chinese variant of the Buick Regal. And, the new Saab 9-5 is based on a long wheelbase variant of Epsilon II, which may be what Shanghai is now also looking at.

Yet all of this is still be subject to Swedish government backing for an application for an EIB loan. By the way, let's hopes the Swedes move quicker than Her Majesty's government did here in the UK, where talks with JLR dragged on for months until Tata found alternative ways of guaranteeing the EIB money, and walked away.

If the EIB does OK an €500 million ($704 million) loan, the consortium will have managed to raise 70% of the capital it feels it needs. Meanwhile, the Swedish government has again emphasised that the Swedish government won't buy a stake in Saab or help it in any way other than possibly providing guarantees for the EIB loan.

Whilst the deal may offer short-term hope, as we saw with MG Rover, this is no guarantee of long-term survival, and the firm faces many of the same challenges that faced a newly independent MG Rover back in 2000. Saab faces a long, hard road ahead.

Saab Timeline

1937 - Svenska Aeroplan Aktiebolaget (SAAB) founded in 1937 in Trollhattan, Sweden, to produce high-performance aircraft.
1946 - Car production started.
1968 - Saab 99 launched.
1969 - Saab AB and truck manufacturer Scania-Vabis AB are merged to become Saab Scania AB.
1978 - Saab 900 launched.
1990 - Saab's car division is restructured into an independent company, Saab Automobile AB, with headquarters in Sweden. GM takes a 50% stake alongside AB.
2000 - GM takes full control, buying the other 50% stake.
January 2009 - GM has been in talks to sell its struggling Saab unit, GM Europe chief Carl-Peter Forster says. The Swedish government says it will not take a stake in Saab or offer aid.
February 2009 - Saab granted bankruptcy protection from creditors while it tries to find a new partner and raise funds. Saab estimates 2008 losses at around $340 million, expected similar losses in 2009, given falling demand, old products, overcapacity and high costs.
March 12 - Saab axes 750 jobs.
June 2009 - GM Europe announces a preliminary deal for Koenigsegg to buy Saab.
June 2009 - The bankruptcy court OKs a 75 percent write-down of Saab's $1.28 billion debt (owed mainly to GM).
August 2009 - Koenigsegg seals a deal with GM to buy Saab, pending Swedish government support for an EIB loan application.

Professor David Bailey works at Coventry University Business School.