TROLLHATTAN, Sweden—After a year of dramatic negotiations, the small but proud Swedish automobile maker Saab—known to be “born from jet planes”—got an order from parent company General Motors Co. last week to shut down operations.
An effort to sell the company to Dutch supercar maker Spyker had hit a snag late last week, but a last-ditch effort by the potential buyer has rekindled negotiations.
Saab’s fate now hangs in the balance, ahead of the Dec. 31 deadline set by GM, and has shocked the Swedes and the Swedish automobile industry. When the tides of initial shock subside, it is time for the Swedish manufacturing industry to wake up and learn from the experience.
Tradition and Expertise
Sweden has a tradition of producing premium cars, and will have much to lose if it fails to maintain competitiveness in the industry during the current crisis. It possesses high technical expertise in automobile engineering and production. The Swedish auto industry has inspired advancements in cutting edge technology in the field of safety systems, information technology; software-based automotive system, assembly methods, and research.
However, these advantages are diminishing quickly in the dynamic global economy. High production costs, the shifting of the demand of cars to distant Asian markets and the trend towards smaller, cheaper, and more energy-efficient cars are factors that work against the Swedish auto industry, according to an analysis by the Swedish Agency for Economic and Regional Growth.
The threats of global warming and high oil prices pose a challenge to the automobile industry, but simultaneously offer an opportunity to inspire innovation, learning, research, and enterprise, of which the Swedes were rather late to capitalize on.
Recently, Volvo Car Corporation—another leading Swedish automaker—surprised the industry with the release of its DRIVEe small cars. Both Volvo and Saab have several ongoing projects with promising hybrid and electric vehicle technologies.
Collapse of Saab Not Entirely Unexpected
The people of Swedish town Trollhattan, where the Saab factory is located, were caught by surprise when the GM message came just days before Christmas. Hopes for revival with the production of the new 9-5 model after the New Year were almost totally crushed.
The Swedish Minister for Enterprise Maud Olofsson said, at a rapidly summoned conference on the same day, that she was a surprised, and the decision was a heavy blow to all employees who have fought hard to save the company.
However, the outcome was not unexpected. Negotiations between the major players GM, the Swedish government, the European Investment Bank (EIB), and potential buyers have been turbulent because of conflicting special interests.
From the start, GM was set to focus on saving its core operations and wanted to get rid of the burden of maintaining a money-losing brand. The Swedish government said it would not risk taxpayers’ funds if Saab simply cannot compete in the marketplace.
The EIB, an affiliate of the European Union, would offer a loan of about US$500 million on favorable terms to the buyer, but requires adequate security—such as government guarantees—that the Swedish government refused. None of the potential buyers—Spyker and Koenigsegg—had proposed a convincing business plan for their interest in Saab.
Irresolvable Issues
In their simultaneous announcements, both GM and the latest bidder Spyker stated that negotiations for the sale of Saab had been discarded because “certain issues” could not be resolved within the deadline. No details of the “issues” were disclosed.
When pressured by a reporter at the media conference call on Dec. 18, John Smith, vice president of GM Corporate Planning said, “No amount of additional time would be able to resolve that [issue].”
This gave rise to speculations in the media that the “issue” came down to the collateral for the EIB loans, as well as the financial wherewithal of Spyker to integrate a much larger company.
The Swedish government has all along adopted a nonnegotiable standpoint that it would not invest taxpayer money into Saab but would support the potential investor. The media had speculated that Spyker’s financial situation did not meet EIB’s requirements for a loan.
Although GM would not put the blame on the Swedish government, it is reasonable to expect that the Swedish government, which had refused to guarantee the EIB loans until the previous bidder Koenigsegg backed out of an agreed acquisition, and it appeared that Spyker also would not proceed unless certain guarantees were in place.
Days before the decision, the media reported that Spyker was a company in financial trouble. According to the Swedish financial daily Dagens Industri on Dec. 17, Spyker is currently in heavy debt and facing accusations of stock manipulation and false accounting. GM’s decision to drop Saab came the next day.
The Liquidation Process
GM is still on the path of recovery from it own crisis. It had trimmed operations and will focus on the four core brands Buick, Cadillac, Chevrolet and GMC, and several regional brands, including Opel and Vauxhall in Europe.
But Saab’s liquidation can be a costly process. GM expects “to satisfy debts including supplier payments” and to liquidate the company in an “orderly manner,” a company statement said. All current Saab car owners will continue to enjoy warranties, receive service, and access spare parts.
Recently, Saab closed the sale of certain Saab technology and tooling to Beijing Automotive Industry Holdings. The deal, conveniently, brings funds to the liquidation that can be a long process.
It is possible that new Saab 9-5 tooling would be taken over by Opel or put up for sale in the liquidation process.
Impact on the Region
The impact of the liquidation of Saab on the regional economy is very significant. No other brand is comparable in generating direct and indirect jobs, according to the Swedish Agency for Economic and Regional Growth. In addition, every one of these lost jobs would create another 1.6 job losses in the community.
Saab supports about 3,500 jobs and indirectly, 4,500 more jobs at its suppliers. An additional 20,000 jobs, mostly service and support workers that serve Saab headquarters and corresponding community, in the region are affected.
The other major Swedish carmaker—Ford Motor Co.-owned Volvo Car Corporation—is in the process of being sold to a Chinese company. Although the situation with Volvo is more favorable, a successful sale will not guarantee that jobs and production will remain in Sweden. In fact, all signs point to the contrary.
During the 1980s, the Swedish shipping industry encountered a similar crisis that eventually led to its total disappearance in the country. However, it was promptly replaced by a progressive transport industry that created even more new jobs than those that disappeared.
Unfortunately, today, there is no other major industry in Sweden that can ably replace the car industry as a major employer.
Lessons to Learn
Since GM currently will not reveal the details of the issues that led to the shut down of Saab, speculation and emotional accusations have started to circulate as to what went wrong in the year-long negotiations. It is fair to demand that GM disclose the grounds for their decision, but the Swedes should also scrutinize themselves to learn from the failure.
The Swedish government was an active part of negotiations but it also maintained a firm position that no taxpayer money would be invested in a non-profitable company. On repeated occasions, Olofsson told the media that the government has “no money and competency” to run a car company. In defending its position, however, the Swedish government did not consider all the facts.
For instance, it is not the government who is expected to run the business but Saab management and its employees. The impact of losing 20,000 jobs will be substantial in the region and no other industry could compensate for the detrimental economical effects. In Germany, France, United States, and many other countries, the government was more supportive during the current period of financial crisis.
Unlike shipping, the automobile industry is still full of potential. In fact, the industry is facing new customer demands that require innovative product research and development, updated production plants, and infrastructure changes. These challenges could become dynamic stimulants to the region and Swedish economy.
No doubt, the car industry is undergoing consolidation and structural changes, but to lie down without a fight would be accepting premature defeat.
Friends Read Free