Rescued at the brink of oblivion by a Dutch upstart, the quirky Swedish car that was “born of jets” looks to a better life after another restructuring
An eerie stillness pervades the massive factory. That's not the way it's supposed to be. Assembly plants are normally exercises in carefully controlled cacophony that operate one step short of chaos. Where is the whine of the ratchet drivers, the thump of stamping presses and the beeping horns?
"It's going to take some time before we're back to normal," admitted Victor Muller, when he surveyed the sprawling factory he has just purchased on the outskirts of the small Swedish town of Trollhätten last spring. One of the newer and most modern assembly plants in the auto industry, it was designed to produce as many as 200,000 vehicles annually, but for the moment it struggles to produce just a couple dozen cars a day. "But at least we're back in business," the lawyer-turned-auto-magnate said at the time.
Just a few months earlier, it had looked as if this factory and the company that operated it were doomed to become another sob story, the tale of a once-promising brand that had been serially mismanaged, only to wind up tossed onto the industry's overflowing rust heap. But with his purchase, Muller insisted, this was going to be one Saab story with a happy ending.
From fighters to four wheels
As the Swedish maker is fond of saying, Saab really was "born of jets." The name is an acronym for Svenska Aeroplan Aktiebolaget—Swedish Airplane Limited, in English—the company that was created in 1937 to build the military aircraft needed to enforce neutrality at a time when world war seemed likely. When the combat was over and demand for fighters had diminished, the ever-resourceful Swedes went looking for additional business. They found it in the form of the Saab 92. Decidedly ahead of its time, with the most aero-efficient shape of its era, the curiously curvaceous little sedan made its debut in 1949 and remained in production until 1955.
From the start, Saab earned a reputation for being, well, quirky. It wasn't just the jellybean shape of models like the 92 and subsequent 93. The ignition keyhole was mounted on the center console and the often-underpowered two-stroke engine required routine additions of oil to the fuel tank to keep the pistons properly lubricated. Saab was different—and proud of it.
Saab owners proved an equally proud and loyal bunch, but alas not a group large enough to nudge the forever struggling company into financial health. By 1989, the automotive side of what was by then Saab-Scania had become a burden the company desperately needed to jettison. Restructured and renamed Saab Automobile AB, a 50-percent stake was sold to General Motors for $600 million. The other half was acquired by Investor AB, the financial arm of Sweden's most powerful family, the Wallenbergs.
As part of the deal, GM was given the right to buy—some would say it was put on the hook for—the other half of the automaker. Perhaps buoyed by Saab's rare and unexpected profit, in 1995, the Swedes' first in seven years, GM eventually agreed to buy out its partner. The move cost the U.S. giant another $125 million, but the bills were only beginning to pile up.
In the years to follow, General Motors would spend countless millions in a fruitless effort to turn things around—modernizing the Trollhätten plant, for one thing. It updated the 9-3 sedan, and it added new offerings, such as the little 9-2 and the 9-7X sport-utility vehicle. GM tried emphasizing Saab's quirkiness and, when that failed to move the needle, it attempted to market the brand as something more mainstream. But the losses grew while sales stagnated.
"It's not easy, when you're a company that makes millions of cars a year, to figure out how to steward a company that makes 130,000," acknowledged Steve Shannon, one of a procession of GM managers who were assigned to try to turn things around at Saab.
To skeptics, GM just took too many shortcuts. The 9-7X was little more than a gussied-up version of the Chevy TrailBlazer, the 9-2 an only slightly modified version of the sporty Subaru WRX, built by Fuji Heavy Industries, with which GM had another short-lived and unhappy relationship. Meanwhile, the 9-5 flagship was allowed to rot, going 13 years without an update.
As the end of the new millennium's first decade approached, some caught a glimmer of hope that things might turn around as a new 9-5 was ready for market. But, by then, Saab's parent was in failing health itself.
GM augers in
With its own losses climbing into the tens of billions, General Motors was like an elderly patient; the next blow could readily take it down. And it came with the Lehman Bros. fiasco that not only shattered the financial markets, but sent U.S. auto sales plunging to their lowest levels since the Great Depression. Within months, Rick Wagoner, who was then GM's CEO, would be begging Washington for a handout.
After George W. Bush offered only temporary assistance, the newly inaugurated President Barack Obama agreed to boost the aid to $50 billion—but only if Wagoner were fired. In May 2009, the 100-year-old GM was placed into Chapter 11.
With the White House orchestrating the process, the journey through federal bankruptcy court was a surprisingly swift one, but the draconian restructuring plan that emerged would wipe out tens of billions of dollars in equity—and require GM to either close or sell off half its North American brands. The Pontiac, Saturn and Hummer divisions were dispatched.
Saab seemed poised to enjoy a better fate; as many as 27 potential buyers looked over its books. But what makers like BMW and Fiat saw sent them scurrying and by mid-2009 only three remained. Of that group, the most serious offer came from Koenigsegg, but by the end of autumn, it became obvious the small Swedish supercar manufacturer was in way over its head and couldn't pull together the necessary financing.
Any hope that Stockholm would mirror a Washington-style bailout was dashed when industry minister Maud Olofsson declared, "The Swedish state and taxpayers in Sweden will not own car factories." Though GM still promised to entertain alternate bids, its tough new management team, prodded by the White House to move with all possible haste, began winding down Saab operations. Suppliers were told to cancel orders. The board of directors was disbanded as Saab was taken into administration—the equivalent of Chapter 11—and the production of the new 9-5 sedan, which had begun only weeks earlier, was halted.
The Dutch White Knight's descent into hell
As the New Year rolled in, it was Saab that seemed ready to have its life-support pulled. GM had even begun selling off its assets, the Chinese carmaker BAIC purchasing the intellectual property rights and tooling for the prior-generation 9-5 and smaller 9-3 models. But suddenly, three new offers landed in GM's corporate lap.
Even then, GM continued to wind things down as two bids faltered. But the troubled U.S. maker clearly underestimated the determination of one of the bidders: Spyker, a miniscule Dutch sports car maker. In a surprise January 26th, 2010 announcement, GM confirmed it had a potential deal in hand. And just four weeks later, after winning Stockholm's backing for a loan from the European Investment Bank, Spyker was handed the keys.
And only then did Victor Muller, the Dutchman behind the White Knight effort, finally start asking himself what he had gotten into.
More experienced auto veterans might have walked away from Saab, but the unlikely new owner had long before proved himself tenaciously willing to take risks others wouldn't even consider. Trained at Leiden, Holland's oldest and most respected university, this son of a chartered accountant quickly migrated to mergers and acquisitions, and in 1989 was hired by the vast conglomerate Heerema. Two years later, Muller bought out the firm's maritime towing and salvage company, redefining himself an entrepreneur "buying up businesses that needed repair."
Eventually selling off Wijsmuller, the former Heerema subsidiary, could have set Victor Muller up for life, but at 40, he wasn't the type to drift into lavish retirement. Not that he didn't enjoy the trappings. He acquired The Highlander, one of the yachts owned by the late Malcolm Forbes. And he began building another fleet—of cars. At one point he owned more than 50, ranging from new Ferraris to pre-War Rolls-Royces and Invictas.
It's hard to say where the bug bit, but by 1997 Muller wanted to add another nameplate to his collection. In this case, he didn't just buy an old Spyker, he revived the Dutch automaker itself, which had gone out of business in 1925. Ironically, Spyker also had an aviation heritage, the company spun off from a World War I-era aircraft manufacturer. But as small as Saab might have been, it was orders of magnitude larger than Spyker, which launched its first all-new model in 2000 and has since measured total sales in the hundreds.
The revival of Spyker as a viable business "was hell," recalls Muller, "self-inflicted hell. But this is what I chose and I stuck with it." To the skeptics, the M&A specialist's descent into Hades might have only begun with Spyker. The question is whether he is about to dive even deeper into Dante's inferno.
Entrepreneurs and oligarchs
The auto industry is not a business for the fainthearted, and even big fortunes can quickly turn into little ones when things go wrong. Hoping to preserve what cash he could and keep both car lines going, Muller made the decision to sell off Spyker, earlier this year, to his former partner, the Russian oligarch Vladimir Antonov. (GM had forced the Slavic businessman out of the company when it refused to even negotiate with Spyker if Antonov was going to be part of the deal.)
"This transaction will allow Spyker Cars N.V. to focus on the Saab Automobile business exclusively, will eliminate the requirement for us to make further capital investment in the Spyker (brand) and will reduce our debt," the Spyker Chairman Hans Hugenholtz said in a statement.
Legend has it that when he began his brief foray into automotive manufacturing, entrepreneur Henry J. Kaiser boasted, at an industry event, that he was ready to kick in what would amount to a billion dollars today. "Give that man one chip," chimed in the then-president of General Motors.
By that measurement, Muller doesn't even have a full chip. And his new company has been draining what cash he has. Prior to the sale of its Dutch sports car operation, Spyker reported a third-quarter loss of nearly $56 million and is reportedly continuing to bleed red. But "It wasn't unexpected," said Mike Colleran, the former GM executive who served as the transition chief of Saab's U.S. operations before leaving the company earlier this year. "Starting up a new business, you're going to see your money go, but you have to invest in the business."
For his part, Muller is typically unflappable, pointing out that "If we didn't have all these (short-term) issues, we wouldn't have gotten Saab for $74 million-less than what its wind tunnel is worth. We would have paid $7.4 billion." Not only did he get the wind tunnel and the Trollhätten plant but a new 9-4 crossover and a nearly-completed remake of the main 9-3 model line.
The first thing Muller had to do once possession of the company changed hands was to get production of the critical new 9-5 restarted. Ramping up production at a plant like Trollhätten wasn't as simple as turning the key on the car's center console, he quickly realized. It took nearly two months simply to get all the suppliers to start shipping parts again. And by the time we first spoke at the Swedish factory, in mid-2010, the lines were running at only a fraction of capacity.
Even with cars rolling out once again, the new management team had to work out the kinks in the distribution system. In the U.S. alone, dealers had closed by the dozens and sent their service staff packing. Then there is the challenge of telling the world the Swedes are back in business. "If Saab is perceived as a zombie, who would want to get onboard?" asks Muller. "No one buys a car from a company they think is dead. But most people now think that's what happened."
The rise of the PhoeniX
The maker has been struggling to convince potential buyers it has plenty of life left, starting with a series of eye-catching-if costly-TV commercials. But Saab simply doesn't have the budget to compete in the broadcast marketing game with bigger competitors, like BMW and Mercedes-Benz, nor should it, suggests analyst Dan Gorrell, of AutoStrategem. Embracing its reputation for quirkiness lends itself to alternative marketing strategies—and unusual concept vehicles like the PhoeniX, which made its debut at the Geneva Motor Show this March.
The striking design is the work of Saab's new design chief Jason Castriota, the multitalented designer responsible for exotic products such as the Maserati Birdcage concept and the Ferrari 599 GTB. Castriota calls the prototype "aero-motional," a reference to Saab's aeronautic roots. The front end of the concept car, he explains, is almost a nose cone flowing into a fighter jet's body. With its highly aerodynamic Kamm back, the PhoeniX show car has a surprisingly sleek 0.25 coefficient of drag, on a par with some of the best race cars.
While PhoeniX won't return in production form, Castriota insists it was critical to go with the over-the-top design because Saab has to work harder than brands like Audi or BMW to get attention. "You don't want to have a wooden spoon in a knife fight," is how he puts it. And even so, the concept car has plenty of distinctive styling cues that would suggest the path Castriota is taking with the upcoming 9-3 replacement and products beyond, such as the small 9-2 model.
Coming up with the cash for the 9-2 remains a challenge, one that Muller hopes to overcome by partnering with another automaker-an increasingly common process in today's automotive world. He has already signed up a dream deal with BMW, with the German maker planning to provide powertrains for future Saab models. Meanwhile, Detroit's American Axle will help Saab launch a pilot fleet of battery cars.
More immediately, the new 9-4X, Saab's first crossover-utility vehicle, should be rolling into U.S. showrooms by the time this story reaches print. And the maker is getting closer and closer to launch of the new 9-3 which, if tradition holds, should be its bread-and-butter car.
Until then, it will be a struggle. Saab sold just 36,000 vehicles last year, a fraction of its former numbers but understandable considering it wasn't even building cars at the start of 2010. Muller is confident that, with the new 9-5 now in full production and with the launch of the 9-4X, volume will improve significantly this year. "We don't need to sell six million vehicles. We don't need to sell one million. Saab," he proclaims, "will be very profitable selling 120,000." And its breakeven should be only about two-thirds of that, if the plan is on target.
There are more than a few skeptics—even Antonov has suggested that Saab will fall short of its target in 2011.
Aaron Bragman, an analyst with IHS Global Insight says that while Victor Muller is a persuasive man, he clearly has set a hellacious goal for his company. "While force of personality is helpful, it will come down to the numbers," cautions Bragman, and it remains to be seen not only if the 120,000 sales target can be reached but whether it can sustain profitability. Though Saab will have a good product lineup in the near-term, keeping it competitive will be a big challenge, even with partners like BMW.
For his part, Muller doesn't dismiss the critics, but he is convinced that if his Swedish brand can simply tap "2 percent" of the 6 million current and former Saab owners and bring in just a modest stream of new converts it should be able to keep the Trollhätten line rolling, and at full speed.
In the meantime, the company is cutting costs wherever possible. You'll often find senior managers pulling weeds at the U.S. headquarters, in a nondescript old neighborhood north of Detroit. Muller, meanwhile, "is likely to be making the coffee, making the phone calls and doing the engineering all at the same time." Saab has defied the odds, for now, but this traditionally quirky carmaker is going to have to find its own unique path to success going forward.
Paul A. Eisenstein is publisher of TheDetroitBureau.com on the Internet.