Saab: Why Gm Sent In Its Ace Mechanic

After seven years, quality is up but losses are mounting

There is nothing like red ink to focus the mind. Mounting losses at Saab Automobile have prodded General Motors Corp., which owns half of the Swedish company, to send in top troubleshooter Robert W. Hendry as CEO. For Hendry, a close confidant of GM Chairman John F. Smith Jr., Saab's problem is one of basic math. Consumers buy only about 100,000 Saabs every year, even with heavy discounting in key markets such as the U.S. Sales need to hit 140,000 a year before Saab turns a reasonable profit. The latest losses: $64.6 million for the 1996 first half, on sales of $1.5 billion.

Hendry, 51, took over Aug. 1 from former GM executive Keith O. Butler-Wheelhouse. He concedes that mending Saab "is going to be a big challenge." But it's no pipe dream, either. After seven years under GM's wing, Saab's factory productivity is much improved and quality is up dramatically. A luxury replacement for the aging 9000 model, which starts at $32,200 in the U.S., is due in European showrooms next spring and in the U.S. next fall. It will give Saab its freshest lineup in more than a decade.

The new car is code-named C640 and targeted at competitors such as the hot-selling BMW 5 series. Analysts say its success is crucial to turning Saab around. With product development almost prohibitively costly for a small player such as Saab, the company has had to dip into GM's parts bin--without sacrificing the quirky flair that is Saab's trademark. It will share an estimated 45% of its components with Opel models such as the $27,000 Omega. After the sedan debuts next year, a station wagon version--Saab's first--comes in 1998. The hatchback version of the current 9000 will remain in Europe to bolster Saab's limited lineup, possibly until the year 2000.

With fresh products on tap, Hendry's main chore is to rebuild Saab's sputtering dealer network. His first target is the U.S., where Saab sells 30% of its cars. He has brought in marketing executives from GM's Saturn division to make it happen. Saab's new chief in the U.S. is Joel Manby, a former regional manager at Saturn. He wants to inspire in Saab customers the cultlike enthusiasm generated at Saturn. "If we can capture some of the dynamite Saturn has, it would be, if not a home run, at least a solid triple for Saab," says Manby.

He intends to introduce a key Saturn technique: give each dealer a large geographic area, cutting down on competition between Saab retailers and boosting their profits. Through attrition and some buyouts, he plans to trim by as much as 15% a year Saab's current complement of 285 U.S. dealers. And he hopes to increase the number of stand-alone dealerships, which sell more cars than those that sell Saabs alongside other brands.

Manby also plans to emulate some of Saturn's successful selling techniques. No-haggle pricing, which consumers love, is one. Other GM brands have had mixed success with the technique, but thinning out Saab's dealer network may make it work. Manby even envisions selling Saabs on the Internet.

Saab's problems have resisted solution for years. Since 1990, Saab has shut two factories, sold two others, and slashed the workforce by half, to 8,000. The company has laboriously reduced the number of hours it takes to make a car from about 100 in 1987 to 40 in 1995. The $24,500, sporty 900 model, after a glitch-filled launch in 1994, was the most improved model in the J.D. Power & Associates Initial Quality Survey this year, making the top 10.

SKEPTICS. GM, which has spent $1.4 billion on Saab since buying in in 1989, desperately wants to avoid a fiasco. In June, GM and Sweden's Investor, GM's partner in Saab, signed a refinancing agreement that will inject $524 million into Saab. GM has the right to buy the remaining shares from Investor by 2000.

Skeptics show little enthusiasm, noting that Saab still won't have much product to sell. Other makers of costly European cars, such as Volvo and Mercedes, are racing to broaden their model ranges. "[Reaching] 140,000 is just not going to happen with a two-line range," says Nigel Griffiths, European auto analyst at DRI/McGraw-Hill. Says another analyst: "They need more new product with more equipment in it at lower prices." Maybe so, but give GM credit for finally moving decisively to save a failing franchise.

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