Abstract / Description of output
Saab Automobile AB was declared bankrupt on December 19, 2011. This marked the end of 62 years of car production for the iconic brand, which during its final years was beset with financial problems and changes of ownership. More than 3,700 workers lost their jobs when the Trollhättan factory finally closed its doors after producing a total of 4.5 million Saab vehicles over the years. But what was the root cause for the company’s demise? Was it preventable? And who was to blame?
The failure of Saab was ultimately a market-constrained failure. While Saab enjoyed loyal customers and a history of distinctive and innovative products, its operations were subscale and the segment in which Saab operated gave it insufficient room to grow given the strength of its competitors. With production never exceeding 150,000 units per annum, the niche that Saab occupied was too small to sustain its operations at the prices its products were able to command. In its final years, Saab produced the same volumes as Porsche, yet was competing with Audi who not only had almost ten times Saab’s volumes but also benefited from well-executed platform-sharing and economies of scale within the Volkswagen Group. In simple terms Saab had the worst of both worlds - Porsche volumes with Audi prices. This was not sustainable.
Many will claim that Saab’s demise is a consequence of brand mismanagement by GM. This is too simplistic. To GM’s credit, it supported Saab despite making losses in almost every year of its 20 year ownership of Saab (with the exception of 1994, 1995 and 2001). But GM-Europe’s configuration as a very high-volume producer of economy to mid range cars sat uncomfortably with Saab’s niche of individualism, technological sophistication and premium positioning. Saab for its part resisted attempts by GM to standardize and cut costs by creating economies of scale through joint models with Opel. Furthermore, Saab shared its market segment with strong competitors such as Audi, who also played on brand values of individualistic understatement and innovative technology - and eventually marginalised Saab to being a low volume producer of not-quite-premium cars.
A crucial tension between premium auto brands and their more mainstream parents is that synergies need to be found 'underneath the skin' of the vehicle without destroying the uniqueness of the brand. With GM and Saab this tension was not managed effectively and the Saab brand was compromised.
At the most fundamental level the problems that brought Saab to its knees date much further back: it was a missed opportunity for Saab to be for GM, what Audi became for VW -- a fully integrated brand with a clear, distinct premium image. And here both GM and Saab are to blame: GM for not understanding Saab, and Saab for resisting the integration with GM Europe, which in the long term destroyed its economic basis in a scale-driven automotive industry. However we also acknowledge that the particular attributes of the Saab brand made this a very tricky problem: to be economically viable, Saab had to grow. But if it grew, it would undermine the inherent value of the Saab brand. Essentially Saab fell victim to its own contradictions.
The final straw was the global financial crisis. Saab’s volumes fell from around 125,000 units per annum to just 20,791 units in 2009, and never recovered. Losses were mounting. GM’s own bankruptcy in 2009 meant it was forced to cull half of its brands, and came close to disposing of its European core, Opel/Vauxhall. Saab was the weakest part of GM Europe, so it had to be sold or closed.
When Spyker (later renamed into Swedish Automobile NV, or SWAN) took over in early 2010, the business was scarcely viable. Everything depended on the new 9-5 model and when sales of this failed to take off it took only months for Saab to run out of cash. Suppliers halted deliveries in April 2011 due to lack of payment. From April onwards there were frantic efforts to find an investor for Saab. Candidates included Vladimir Antonov, a Russian financier, Hawtai, a Chinese motor group and Youngman (another Chinese motor manufacturer), Pang da (a Chinese distributor) and an unnamed Chinese bank. For different reasons, all came to nothing, the final nail in the coffin being GM’s refusal to allow the technology and know-how in Saab models to go to a competitor to its own partner in the Chinese market. For GM it did not make any commercial sense to allow its technology to go a potential competitor in its second most important market, China.
Taking a wider perspective, the fundamental economics of the modern automotive industry cannot support individualistic designs at the prices that Saab was able to command. Low volume producers can survive when their customers are ones with very deep pockets. If their customers don’t have deep pockets then they at least need to be plentiful in number. Sadly, Saab’s customers were neither. The Saab story is reminiscent of the last collapse of a major car company, namely the UK’s MG Rover in 2005. Like Saab, Rover found that it was unable to sustain itself following separation from a corporate parent. As with Saab, partnerships with Chinese investors were promised and a deal seemed possible up to the very last minute - but never materialised.
The story of Saab could soon be repeated. Other smaller premium or niche manufacturers also risk being caught in the unhappy middle between high-volume luxury producers (such as Audi, BMW, Mercedes) that all produce around a million units per annum, and the high-margin/low-volume producers (such as Porsche, Ferrari, Rolls Royce) who recover their costs through high margins. Companies that fall between these camps will find it hard to generate the cash necessary to develop new products, and therefore will ultimately fail. And being part of a larger group is not a guarantor for survival. Many other premium auto brands have been acquired by larger auto groups. but these mergers are often not happy marriages. The key to success of such alliances is not just financial strength, but complementarity between the merging firms. Many alliances have failed on this account, and more may yet do so
The failure of Saab was ultimately a market-constrained failure. While Saab enjoyed loyal customers and a history of distinctive and innovative products, its operations were subscale and the segment in which Saab operated gave it insufficient room to grow given the strength of its competitors. With production never exceeding 150,000 units per annum, the niche that Saab occupied was too small to sustain its operations at the prices its products were able to command. In its final years, Saab produced the same volumes as Porsche, yet was competing with Audi who not only had almost ten times Saab’s volumes but also benefited from well-executed platform-sharing and economies of scale within the Volkswagen Group. In simple terms Saab had the worst of both worlds - Porsche volumes with Audi prices. This was not sustainable.
Many will claim that Saab’s demise is a consequence of brand mismanagement by GM. This is too simplistic. To GM’s credit, it supported Saab despite making losses in almost every year of its 20 year ownership of Saab (with the exception of 1994, 1995 and 2001). But GM-Europe’s configuration as a very high-volume producer of economy to mid range cars sat uncomfortably with Saab’s niche of individualism, technological sophistication and premium positioning. Saab for its part resisted attempts by GM to standardize and cut costs by creating economies of scale through joint models with Opel. Furthermore, Saab shared its market segment with strong competitors such as Audi, who also played on brand values of individualistic understatement and innovative technology - and eventually marginalised Saab to being a low volume producer of not-quite-premium cars.
A crucial tension between premium auto brands and their more mainstream parents is that synergies need to be found 'underneath the skin' of the vehicle without destroying the uniqueness of the brand. With GM and Saab this tension was not managed effectively and the Saab brand was compromised.
At the most fundamental level the problems that brought Saab to its knees date much further back: it was a missed opportunity for Saab to be for GM, what Audi became for VW -- a fully integrated brand with a clear, distinct premium image. And here both GM and Saab are to blame: GM for not understanding Saab, and Saab for resisting the integration with GM Europe, which in the long term destroyed its economic basis in a scale-driven automotive industry. However we also acknowledge that the particular attributes of the Saab brand made this a very tricky problem: to be economically viable, Saab had to grow. But if it grew, it would undermine the inherent value of the Saab brand. Essentially Saab fell victim to its own contradictions.
The final straw was the global financial crisis. Saab’s volumes fell from around 125,000 units per annum to just 20,791 units in 2009, and never recovered. Losses were mounting. GM’s own bankruptcy in 2009 meant it was forced to cull half of its brands, and came close to disposing of its European core, Opel/Vauxhall. Saab was the weakest part of GM Europe, so it had to be sold or closed.
When Spyker (later renamed into Swedish Automobile NV, or SWAN) took over in early 2010, the business was scarcely viable. Everything depended on the new 9-5 model and when sales of this failed to take off it took only months for Saab to run out of cash. Suppliers halted deliveries in April 2011 due to lack of payment. From April onwards there were frantic efforts to find an investor for Saab. Candidates included Vladimir Antonov, a Russian financier, Hawtai, a Chinese motor group and Youngman (another Chinese motor manufacturer), Pang da (a Chinese distributor) and an unnamed Chinese bank. For different reasons, all came to nothing, the final nail in the coffin being GM’s refusal to allow the technology and know-how in Saab models to go to a competitor to its own partner in the Chinese market. For GM it did not make any commercial sense to allow its technology to go a potential competitor in its second most important market, China.
Taking a wider perspective, the fundamental economics of the modern automotive industry cannot support individualistic designs at the prices that Saab was able to command. Low volume producers can survive when their customers are ones with very deep pockets. If their customers don’t have deep pockets then they at least need to be plentiful in number. Sadly, Saab’s customers were neither. The Saab story is reminiscent of the last collapse of a major car company, namely the UK’s MG Rover in 2005. Like Saab, Rover found that it was unable to sustain itself following separation from a corporate parent. As with Saab, partnerships with Chinese investors were promised and a deal seemed possible up to the very last minute - but never materialised.
The story of Saab could soon be repeated. Other smaller premium or niche manufacturers also risk being caught in the unhappy middle between high-volume luxury producers (such as Audi, BMW, Mercedes) that all produce around a million units per annum, and the high-margin/low-volume producers (such as Porsche, Ferrari, Rolls Royce) who recover their costs through high margins. Companies that fall between these camps will find it hard to generate the cash necessary to develop new products, and therefore will ultimately fail. And being part of a larger group is not a guarantor for survival. Many other premium auto brands have been acquired by larger auto groups. but these mergers are often not happy marriages. The key to success of such alliances is not just financial strength, but complementarity between the merging firms. Many alliances have failed on this account, and more may yet do so
Original language | English |
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Place of Publication | Edinburgh |
Publisher | University of Edinburgh |
Number of pages | 40 |
Publication status | Published - 19 Dec 2011 |
Keywords / Materials (for Non-textual outputs)
- Saab
- Auto industry
- failure, growth, probability, reliability