Can Stolid Old Saab Become Sexy New Saab?

GM orders up new cars and a new image to take on BMW

One of the great mysteries of the luxury-car boom of the past decade has been, what happened to Saab? With its funky Scandinavian design and reputation for dependability, the Swedish brand seemed tailor-made for affluent baby boomers looking for something just a tad different from the BMWs, Volvos, or Audis their neighbors drove. For some folks nothing else will do. "Saabs look different from anything else," says Sebastian Grasso, 35, of Manchester, N.H. He has owned four of them since 1994 and persuaded his mom to buy a convertible. Yet Saab has languished in its quirky niche with such loyalists while other luxury brands dominated the market with new sedans, sports cars, and sport-utility vehicles.

Now General Motors Corp. (GM ), Saab's owner, is out to change that. It is investing in some desperately needed new models, including a sedan version of its entry-level car, the 9-3, and another new 9-3 that resembles a station wagon. And Saab recently kicked off an advertising campaign that will try to give the brand a facelift, convincing buyers that Saabs are turbocharged driving machines capable of going mano a mano with BMWs and Audis. Saab execs insist that their cars have always been performance-oriented. "But people don't know what we are," laments Marketing Vice-President Hans Krondahl.

GM is only now beginning to act on the vision it had in 1990 when it paid $660 million for 50% of the Swedish auto maker. The idea back then was that GM, with its abundant resources, could expand the Saab lineup beyond two models and establish it as a snooty European luxury model to complement GM's Cadillac luxury icon. But those plans fell by the wayside when GM's finances soured in the early '90s. Once things stabilized, GM focused on its more-profitable trucks and sport-utility vehicles. So while rivals rode the luxury-car boom (chart), GM's Swedish stepchild stumbled along. With its losses, purchase price, and other costs, Saab cost GM $2.5 billion before the auto giant finally bought the rest of it in 2000 for a measly $50 million.

Now, GM says it's finally ready to get serious. This fall, it introduces a redesigned sedan model of the Saab 9-3 hatchback. In 2004 comes a new Saab based on the 9-3X concept car that will be a mix of sports car and SUV. With two rows of seats, the as-yet unnamed and unpriced vehicle will have all-wheel drive, nimbler handling, and a reconfigurable interior. It's not a station wagon--those words are verboten in Detroit these days--but it is close to being one. And Saab does hope to sell it to the same folks who now buy Volvo and Audi wagons. GM also wants to bring out a traditional SUV and perhaps a sports car.

Meanwhile, the parent company is shifting Saab's marketing to sell it as a European performance vehicle. Its longtime pitch has been safety and all-weather driving capabilities--one reason U.S. sales are concentrated in the cold Northeast. The hope is that in four years Saab's new models and refurbished image will double the 35,000 cars it now sells in the U.S. Already, since the ads began in January, sales have risen 20%, year-to-year--better than Cadillac, Mercedes, or BMW.

Getting rid of the hatchback should help. When it reissued the flagship 9000 without a hatchback as the 9-5 sedan in 1998, sales tripled the next year, to 17,000 cars. In fact, GM says that in terms of profitability, Saab is almost at the break-even point now. If it can replicate the 9-5's success with its new vehicles, Saab will make a significant contribution to GM's overall comeback, says CEO G. Richard Wagoner Jr. "Saab and Cadillac are our primary bets in the premium segment."

But is Saab really a strong enough brand to support such an ambitious plan? Saab rang up worldwide sales of only $4.5 billion last year, and production topped out at 130,000 cars. Also, one of Saab's biggest strengths is the same offbeat identity that has kept it small. Of course, the same could once have been said of other European luxury brands. Back in the '70s, BMW had little product in the U.S.--mainly its tiny 2002 coupe. But BMW nearly doubled U.S. sales over the past five years, to 213,000 cars, by expanding its lineup with offerings such as the X5 sport-ute.

It's also unclear whether GM is ready to make the same commitment to Saab. Consider, for instance, the wrestling match between Detroit and Trollhattan, Sweden, Saab's home office, over the first attempt to build a Saab SUV. To maximize efficiency, GM wanted to build the vehicle around parts from its Pontiac Aztek and Buick Rendezvous SUVs. But Saab engineers complained that the boxy-looking, underpowered vehicle looked and drove nothing like a Saab. They wanted at least 40 changes. When GM execs saw what that would do to the price, they nixed the project.

GM then came up with a plan for a five- to seven-passenger vehicle using the same hardware as Cadillac's crossover SUV, the SRX, which goes on sale later this year. The styling on that Saab vehicle is done, and the engineering nearly so. But Chief Financial Officer John M. Devine put it on hold after deciding that even a successful SUV would have too small a volume to justify building it at the Cadillac plant in Lansing, Mich. GM says it still plans to go forward with the design, probably building it elsewhere. But James N. Hall, vice-president of consultant AutoPacific Group Inc., says the vehicle will likely miss its original 2004 launch date.

True, GM has allocated an estimated $450 million annually to build new Saabs, including the revamped 9-3 sedan, which comes out this fall in a price range of $28,000 to $44,000. But some analysts think that's still not enough to make up lost ground. "Until GM gives them the investment dollars to grow, Saab will be limited," warns Wes Brown of Nextrend Inc., a consulting firm in Thousand Oaks, Calif.

Saab's new ads stress turbocharged engines and nimble handling--a picture that should play well with those who might otherwise choose Audi or BMW. But until Saab puts new models on the showroom floor, it is likely to watch as flashier rivals speed on ahead.

By David Welch in Detroit

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