Saab Lives - for Now

Saab Chairman Victor Muller smiles and pushes his Black- Berry across the table. On its screen is the image of a silver, teardrop-shaped car he calls the 92, a zippy compact that recalls the spirit of the embattled Swedish company's rebellious early days. The original 92 was a beloved racer on the European Rally circuit in the 1950s. The new one may be the key to Saab's future. If it has one.

"I designed this car myself," says Muller, whose boutique sports-car maker Spyker Cars—which hand-builds about 40 automobiles each year, selling them for $219,000 and up—acquired Saab from General Motors in February for a total $400 million in cash and preferred stock. Muller wants his dream car to communicate the air of genteel nonconformism that Saab aficionados once adored. It's his antidote to the GM era, when Saab subsisted on hand-me-down models from Opel, Subaru, and Chevrolet, and was almost shuttered last winter before Muller finally prevailed. "I want to erase the memory of those cars," he says. "Saab needs to go back to its roots."

There's just one problem. To build the 92, Muller says, "we need $320 million and a car platform from someone else." He and his 900 engineers and designers at Saab headquarters in Trollhättan, Sweden, may understand precisely what Saab loyalists want. Now they have to find a way to make money in order to turn that vision into reality. Otherwise the future runs out two years from now.

Saab lost $570 million in 2009. The company has $200 million in cash and another $480 million in loans from the European Investment Bank. GM gave Saab another $326 million in exchange for preferred stock (and will forgive another $175 million in cash obligations), pushing Saab's total purse up to around $1 billion—small change in the car business. GM, for instance, has $36 billion cash on hand.

Muller will spend one-fifth of his modest war chest to market the new flagship 9-5, a sporty, true-to-the-brand sedan (never mind that it was designed by GM in Germany). It goes on sale this month in Europe and next month in the U.S. Next year he rolls out the 9-4X, a not especially Saab-like SUV based on the hot-selling Cadillac SRX. After that, he has to ready his Trollhättan plant to build a new model 9-3, a smaller sedan and, in its current turbocharged convertible form, arguably the only Saab now being sold that's worthy of the name. It used to sell in decent numbers—until Saab teetered near death last year and prospective buyers fled.

The company's cash gives it until 2012 before it needs to start generating new money for engineering and marketing. By then, Muller says, he plans to triple sales from the paltry 40,000 cars sold worldwide last year. That would bring sales close to the 2006 record of 133,000. If he can hit that target, Saab will be able to earn "a couple hundred million a year in profit," Muller says. He claims it won't be too hard. Saab just needs to reach former customers who have deserted the brand in the 10 years since GM acquired all of the company. Muller figures if he can get 3 percent of the 4.5 million people who once owned a Saab, he can sell 120,000 a year.

Resurrecting a battered brand is tough enough; doing so as a tiny, independent company in an industry dominated by conglomerates is close to impossible. "I don't see how a small company like Saab can make a go of it," says IHS Global Insight analyst John Wolkonowicz. "They don't have the infrastructure or the big sales volume." Industry kingpins such as Renault-Nissan Chief Executive Officer Carlos Ghosn and Fiat-Chrysler CEO Sergio Marchionne agree that carmakers need volume to generate billions for new technology and fresh models. So Renault-Nissan has forged a deal with Germany's Daimler (DAI) to develop small cars and clean engines. Toyota (TM) has teamed with Tesla Motors to build electric cars. Ford (F) and GM jointly develop transmissions. The day he announced that Spyker had bought Saab, Marchionne said at an industry conference in Stockholm, "I like the Saab brand, but I think it's very difficult to be a niche player and be profitable."

One niche carmaker that managed to claw its way back from irrelevance is Audi. Owned by Volkswagen since 1964, the brand was beaten down in the U.S. during the 1980s by a succession of poorly received models and highly publicized quality problems, including sudden acceleration. After annual U.S. sales fell from 74,000 to less than 20,000 in 1991, Audi cut prices, addressed the safety issues, and started rolling out new models that people wanted to buy, says James N. Hall, principal of 2953 Analytics, a Birmingham (Mich.) consulting firm. The Volkswagen Group could afford to be patient while Audi won buyers back. "Saab doesn't have the luxury of being a part of a big seller," Hall says. "Audi lost money in the U.S. while they were establishing the brand." Today, Audi sells about 1 million cars a year globally, maintaining a distinct identity even though it shares platforms and technology with its corporate cousins.

GM's 20-year stewardship of Saab, by contrast, is a case study in brand dilution. For Saab, sharing parts, engines, and chassis with other GM cars meant losing character. The 9-7X SUV was a Chevy Trailblazer with a better grill; Saab purists mockingly called it the Trollblazer. The 9-2X was a Subaru WRX (GM owned 20 percent of Subaru parent Fuji Heavy Industries until 2005), and won the nickname "Saabaru." Neither sold well. Even Saab's two mainstay models— the 9-3 and 9-5—were watered down by GM. The 9-3, once a distinctive hatchback, was remade as a generic sedan. The 9-5 had some real flavor but fell out of fashion during 13 years without an overhaul.

What GM squandered was a specific brand consciousness—a mix of proud Nordic originality and sweet technology—that led many Northeasterners to buy multiple Saabs and drive them for hundreds of thousands of miles. Turbochargers and tight steering made them fun. Hatchbacks and front-wheel drive made them practical. And oft-remarked oddities—the ignition switch between the front seats, a "night panel" switch that shuts down the dashboard except for the speedometer—only hinted at the idiosyncratic Saabishness that some people came to love.

Saab began as Svenska Aeroplan Aktiebolaget in 1937 and began making cars in 1947. After entering the U.S. market in 1957, with the 93, the brand became known for weirdly aerodynamic cars with small, two-cycle engines that required owners to add oil directly to the gas tank. You had to work a little harder to drive a Saab—and to some it was worth the effort. "Those engines were powerful for their size," says Ian Glenday, president of the Saab Club of North America. He bought a 1959 model 93B in 1963 and drove it for five years; he has since bought 10 more Saabs. His first had a pull chain in the cabin that would raise a barrier, cutting air flow to the engine to help it warm up and heat the cabin more quickly. To an electrical technician living in frigid Plattsburgh, N.Y., at the time, that was a nicely engineered bonus. "It wasn't pipe-smoking college professors who got Saab started here," Glenday says. "It was people in technology industries who understood what Saab had done."

The cars were offbeat, practical, and safe. The original 92 was a small car that could "seat five Swedes," says Stephen Goldberger, treasurer of SCNA. Legendary Saab rally racer Erik Carlsson used to roll the 92 over during races, climb out, roll it back on its wheels, jump in, and keep driving.

The Saab 900, introduced in 1978, brought the brand some cachet in the States. Saab moved it upscale compared with other models; in 1980 the car sold for almost $14,000, a $6,000 premium over the 99. It was more stylish and better-appointed and still had plenty of turbocharged pep, says Wolkonowicz of IHS Global Insight. Saabs were a hit with New Englanders because they drove better in snow than the rear-drive sedans that American carmakers were building. But the 900 reached a different audience. "Saab was always embraced by iconoclasts," Wolkonowicz says. "Saab brought in some Yuppies with the 900, especially the 900 convertible." And some eggheads. More than 42 percent of Saab customers have an advanced degree, a higher proportion than any other luxury brand, according to J.D. Power & Associates (MHP).

GM bought half of Saab in 1990 and the rest in 2000, and started sharing Opel parts in the mid-1990s, Hall says. The cars' steering and suspension got softer on the road. "GM wanted more volume, but to do that they diluted the Saab character," he said. "As GM owned more of Saab, the cars became less Saab."

In 2005 the company slipped into crisis. As GM's balance sheet collapsed it raced to cut costs, delaying or cancelling new models. The new 9-5 was eventually put on hold. Marketing budgets also suffered. Saab had enough momentum from the 9-3, launched in 1998 and redesigned in 2003, to sell a record 133,00 cars in 2006. Models like the 9-2X and 9-7X flopped. The lack of investment resulted in a sales decline to 94,751 in 2008. By 2009, GM put the brand on the block.

GM designers realized the company's mistake and began trying to put the Saab back into Saab. The new 9-5 that Spyker inherited from GM has the tight handling the brand used to be known for, says Hall, who has driven the car. Its interior is luxurious but understated. It still has the night switch and between-the-seats ignition. And it was designed and engineered by Opel at its headquarters in Russelsheim, Germany, by a team led by an American and a Brit, says retired GM Vice-Chairman Bob Lutz. They carefully incorporated Saab cues like the 900's curved windshield and remembered to install the turbocharger as well. "We worked very hard to make it a real Saab," Lutz says.

By then, however, the global financial crisis was threatening GM's existence. Saab was one of four brands marked for sale or death. It was given up for dead so many times, Muller says, that many potential buyers have no idea it's still alive.

Muller grew up in Amsterdam, up the street from a Saab dealer; he recalls watching the company's 96 sedan buzzing by. He trained as a lawyer and began his career in 1984 at the Amsterdam office of global law firm Baker & McKenzie. In 1989 the fair-haired, gregarious Dutchman joined the management team of offshore company Heerema, later taking part in a management buyout that made him president of a Dutch harbor-towage and marine-salvage company, Weismuller Holding. Along the way he built up a formidable collection of vintage automobiles—a 1958 Ferrari 250 GT, a 1928 Rolls-Royce Phantom 1 Experimental Jarvis—and traveled the world showing it off. In 1998 he met Maarten de Bruijn, a speedboat builder who had designed and produced a sports car and was looking for a partner. The next year the pair acquired the Spyker brand, which had been founded in 1898 but went out of business in the 1920s. They used the name to start a super sports-car company making hand-built, street-legal racers. Spyker's best year was 2006; the company sold 74 cars. Last year it sold 36.

Spyker has never made money, and its tiny production scale and boutique assembly plant has little to offer a company that wants to build and sell 120,000 cars a year. At its plant in rural Zeewolde, the Netherlands, the white floor is pristine and the shop is quiet; there's no feverish workforce, no clanking assembly line. Mechanics remove their shoes before climbing into one or another of the nine sleek Spykers that are in the plant for service from clients from Russia to Britain. The ambience is about as industrial as a high-end spa. "We create art objects," says Spyker sales manager Peter van Rooy. "You don't do that by throwing together cars in a filthy, smoky hall."

When the financial crisis hit and nearly every carmaker in the world went into the red, Muller got to thinking about Saab. He wasn't a Saab nut—he'd owned only one, not nearly enough to qualify—but figured the brand's affluent, well-educated clientele made the car worth saving. When a consortium led by Swedish sports-car maker Koenigsegg Automotive backed out of a deal with GM in November 2009, Muller sent an e-mail to Lutz saying he wanted to buy the brand. Lutz responded within eight minutes.

Spyker emerged as the frontrunner, and on Dec. 17, Muller and lawyers for GM and Saab gathered in Stockholm to sign the documents. Then GM dropped a bomb: It had suddenly decided there was "no point in carrying on" with the deal. GM Vice-President John Smith declined to elaborate, saying only that Saab would be wound down. It soon emerged that GM's sticking point was Vladimir Antonov, the Russian banker who was Spyker's chairman and biggest shareholder, with a 29.9 percent stake. GM's specific concerns with Antonov have never been publicly explained. His father, banker Alexander Antonov, was shot five times and seriously wounded in Moscow in March 2009. Vladimir Antonov has consistently denied any criminal ties, and in February he complained in a New York Times op-ed that he was pushed out of the Saab deal because of his nationality.

When GM announced the liquidation, Muller didn't give up. He submitted a new bid, continuing the emotional roller-coaster ride for Saab's 3,500 workers and its fans around the world. The automotive press started a death watch. On Jan. 5, 50 Saab enthusiasts drove 35 Saabs to Detroit, parking in the cold outside GM's headquarters and asking it to sell rather than close the brand—a show of support echoed by Saab rallies in dozens of other countries. Weeks of uncertainty passed, with GM insisting it was closing Saab even as it explored other offers, including one from Formula One tycoon Bernie Ecclestone, who partnered with Genii Capital, a Luxembourg-based private equity firm.

Muller revised his offer. He brought in new investors, taking the Russians out as major shareholders of Spyker. By the end of January, Spyker had reemerged as the leading contender. Muller took breaks from endless negotiations by drawing his 92 concept car (professional designers will take it from there). On Jan. 26, after a final all-night push, GM agreed to sell the Saab brand to Spyker, pending the approval of a critical 400 million euro loan from the European Investment Bank, the European Union's lending arm. The price tag was $74 million in cash and $326 million in preferred shares in the new company, which may change its name to Saab Spyker Automobiles.

At a press conference that night at Stockholm's posh Café Opera, Muller said he had slept a total of 15 hours over the five days it took to wrap the deal. "I think he slept less than that," Jan Olsson, who heads Deutsche Bank's (DB) Nordic investment banking activities, told Bloomberg News the next day. "At the press conference last night, he hadn't slept in about 35 hours. He worked all night. He doesn't take no for an answer."

Muller has made believers out of the workers in Trollhättan. "I was definitely worried about losing my job," says Petra Storch, 37, who installs seats and interior parts at the plant. "When we got the word that Victor was going to buy Saab I felt so elated. Now we're going to show the world what Saab can do." Saab cognoscenti are heartened, too—at least, the ones who are aware of Muller's plans. To increase awareness, Muller plans to spend $180 million on marketing in the first year. GM spent a fraction of that annually during Saab's sad final years there.

Losing GM as an owner hurts in at least one way. Saab's second-largest market in the U.S., after New England, is the Detroit area, where GM workers took advantage of employee discounts to buy the cars. That market accounted for 15 percent of U.S. Saab sales in 2008, according to Experian Automotive. "We will lose most of those people," concedes Muller.

If Saab needs such subsidies to survive, it won't. Its revival must start with the new 9-5 on sale this month. The car is getting nice reviews from the motoring press; Car & Driver called it GM's best Saab. It's also more expensive than the car it replaces, with a $40,000 base price that rises to $55,000 for all-wheel drive and a V-6 engine, says Annette Adams, owner of Iowa City Saab. The old car sold for $39,000 to $45,000.

Getting buyers to pay more than $50,000 for a Saab won't be easy, says Eric Noble, president of The CarLab, an auto industry consulting firm in Orange, Calif. That kind of money will buy you an Audi or a BMW. For Saab to command the same price it will need new infusions of technology. Muller plans to outsource much of Saab's future engineering work. "We know for a fact we can get a good partner who wants to share technology with us," he says. Buying technology from other carmakers is difficult—competitors don't like to part with their best engineering. Says Noble: "Running a carmaker that is heavily reliant on components from the outside is a trail of tears."

Such factors could easily delay the 92, Muller's teardrop-shaped baby, and delay could be fatal. Saab is in talks with BMW about getting engines and platforms from its Mini division to make the 92, two sources familiar with the talks say. No deal has been hammered out. Best case, the new 92 comes out in 2013. By then, Muller says, Saab will surely be alive and well and selling tens of thousands of 9-5s and 9-3s to its old customer base. It's a fairy tale, after all. It ought to have a happy ending.

With Jeroen Molenaar in Zeewolde

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