Gm's Swedish Fling Is Causing HeadachesJonathan Kapstein
It's an unusual-looking little machine with a rounded, sloping frame and automatic seat warmers for cold nights out on the road. The unique Saab is also one of Europe's distinctive nameplates. That's why General Motors Corp. in 1989 happily paid Sweden's Saab-Scania $600 million for a 50% stake in its auto making arm. After losing out to rival Ford Motor Co. in the chase for Britain's Jaguar PLC, GM desperately wanted an upscale European line of its own.
Well, a little over a year later, GM's Swedish fling is causing headaches aplenty. Saab export sales to the U. S., the company's biggest market, have plummeted (chart). And the carmaker's other primary markets--Sweden and Britain--are suffering, too. The joint venture, now known as Saab Automobile, is expected to post a stunning $580 million loss, on sales of $2.64 billion, for 1990. That follows a $380 million operating loss in 1989.
CRASH DIET. What's more, the venture faces the formidable task of dealing with Saab's bloated cost structure and rather dated 900 and 9000 series. Another woe: Saab is caught in a currency squeeze. The mark is rising against the Swedish krona, forcing it to pay more for its German components, while the falling dollar means margins on the Saab are under pressure in the U. S. If all this seems rather gloomy, Saab Automobile CEO David J. Herman isn't letting on. He says: "The reasons for doing the deal are still valid."
A GM overseas veteran, Herman has moved quickly to trim capacity at Saab. He has shuttered four components plants and cut 250 managers. More needs to be done. It still takes 60 man-hours to build a Saab 900--about twice as much as at Japanese auto makers. Small wonder, then, that Saab is losing about $6,000 on every car it sells, thanks in part to high labor costs and unfavorable currency translations.
True, the GM-Saab partnership is paying off in some respects. GM's purchasing clout will allow tiny Saab to save $163 million this year on parts. GM is also using Saab's plant in Uusikaupunki, Finland, to build more of its Opel Calibras to sell within Europe.
ERODING SHARE. Yet if the venture is ultimately to succeed, Saab will need some new hits. In the U. S., its Saab 900, priced at about $18,000, and the $22,000 or so 9000 series, which has a more powerful four-cylinder engine, have lost market share to BMW, Lexus, and Audi.
So by the mid-1990s, Saab hopes to roll out three new models, including a replacement for the 900 and a brand-new luxury entry to compete with BMW and
Lexus. Still, don't expect any radical departures in Saab's design. Says Kai Hammerich, senior vice-president at Saab-Scania: "This car will look Saabish."
No doubt. And Herman hopes the new car and others will let Saab double its annual production, to about 180,000 by the end of the decade. For now, though, the Saab deal GM once so coveted doesn't look so alluring.