GM Hands Saab Lifeline After Abandoning Brand

General Motors Co. (GM) is giving former unit Saab Automobile a lease on life 18 months after almost killing off the Swedish brand.

GM, which had planned to shut down Saab before reaching a last-minute deal to sell it to Spyker Cars NV (SPYKR) in February 2010, is now producing Saab’s new 9-4X crossover. For 10 days last month, GM was the only manufacturer of Saab vehicles after a cash crunch forced Saab to shut its Trollhaettan factory.

“Here is GM giving Saab a lifeline, a bit of time hopefully to find a partner, a source of finance,” said Garel Rhys, president of University of Cardiff’s automotive industry research center. “That’s the irony. It’s an indication of what might have been had GM put more resources into Saab while it owned the brand.”

Under GM’s ownership, Saab racked up operating losses of 16.5 billion kronor ($2.65 billion) in the five years to 2008 as Mercedes and BMW took market share. Since being bought by Dutch sports-car maker Spyker, it has been losing about 25 million euros a month before shutting down production on March 29.

The 9-4X, the first Saab model to combine sport-utility vehicle proportions with car handling, will provide a crucial boost to revenue as the company battles for survival. Saab’s production restart was funded by a short-term loan from shareholder Gemini Investment Fund Ltd. and a partnership with Chinese car dealer Pangda Automobile Trade Co., arranged four days after a deal with Hawtai Motor Group collapsed.

‘Hit the Spot’

“This vehicle is enormously important in helping us get our company going again,” Anders Svensson, who heads Saab’s car development, said in an interview. “Since we’re a small carmaker, we can’t really afford to fail with any launch of a new vehicle. We must hit the spot with the 9-4X.”

Saab, whose global sales peaked in 2006 at 133,000 cars, sold just 31,700 vehicles last year, down 21 percent from 2009 and missing an original target of 50,000 to 60,000. Restarting production and restoring ties with suppliers after GM emptied the Trollhaettan factory as part of the planned closure took longer than anticipated.

The GM production partnership is a remnant of the Detroit- based automaker’s two-decade ownership of Saab. The 9-4X, which shares underpinnings with the Cadillac SRX, was the only Saab model being assembled until the Trollhaettan plant restarted on May 27 after a seven-week shutdown caused by suppliers refusing to deliver parts due to unpaid bills.

Lost Ground

GM began making the Saab 9-4X on May 16 at its factory in Ramos Arizpe, Mexico, Svensson said. GM declined to comment on its relationship with Saab.

The model, which hits U.S. showrooms later this month, is a welcome relief for Saab dealers like Kurt Schirm. The president of International Motors Saab, a store in Falls Church, Virginia, has lost customers and cut headcount by 50 percent over the past few years “because of all of the ups and downs and turmoil that has surrounded the brand,” he said.

The 9-4X is “entering the right segment and has the right looks,” said Schirm, who now employs about 28 sales and service staff at his dealership. “Saab’s future is good, but it’s not going to happen overnight.”

Under GM Saab lost ground, while Bayerische Motoren Werke AG (BMW) and Audi surged ahead. Saab’s sales are about a third of what they were in 1995, while BMW and Audi have each more than doubled deliveries by expanding lineups.

‘Between Two Chairs’

What the Swedish carmaker gained in independence, it lost in critical size. Zeewolde, Netherlands-based Spyker was an unprofitable maker of super cars before buying Saab. It sold 36 cars in 2009 and has since agreed to sell the sports-car unit to focus on turning around Saab.

“Unless you are a niche company like Porsche, Ferrari or Bentley, you basically have to sell 500,000 to 1 million cars to be profitable,” said Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg- Essen in Germany. “Saab’s in between two chairs, and there it’s almost impossible to be successful.”

This year’s production stoppages mean that Saab won’t reach an earlier goal to sell 80,000 cars, Saab’s Chief Executive Officer Victor Muller has said. The company still aims to become profitable and sell 120,000 cars by 2012.

Saab was nearly a casualty of GM’s brand shedding after its government-backed bankruptcy, when it closed Saturn, Hummer, and Pontiac. The Swedish unit was slated to shut down after a group led by Koenigsegg Automotive AB pulled out of talks in November 2009. Spyker made a bid after GM had already begun to wind down Saab, eventually paying $74 million in cash and $326 million in preferred shares.

‘Ice Block’ Headlights

The mid-sized 9-4X will go up against established competition such as the Audi Q5, BMW X3 and Lexus RX. The crossover will try to set itself apart by emphasizing its Swedish heritage with a blue-green tone in the “ice block” headlights. It also features a start button between the front seats and design elements from the 9-5 sedan, such as a light ramp over the trunk.

Saab aims to sell at least 12,500 units of the 9-4X annually, of which 10,000 would be in the U.S., development chief Svensson said. The targets may prove to be “pretty modest,” especially if Saab succeeds in breaking into the Chinese market, with the Pangda deal, he said.

The limited ambitions for the model in Europe are a reflection of Saab’s lack of resources. There is no diesel engine for the 9-4X, which crosses it off many shopping lists. Diesel powers more than 50 percent of new cars in western Europe, according to data from the European Automobile Manufacturers’ Association.

While the $33,380 base model, which sports a 265-horsepower V6 engine, is about $2,000 to $6,000 cheaper than its Audi, BMW and Lexus rivals, its main selling point may be relief.

“There’s a lot of pent-up demand from loyal Saab fans who are waiting for new product,” said Jesse Toprak, vice president of industry trends at TrueCar.com in Santa Monica, California, which tracks sales and price trends. “If this product does well, it can signal that the brand is alive and healthy.”

To contact the reporter on this story: Ola Kinnander in Stockholm at okinnander@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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