At Year's End, Volvo's Prospects Look Better Than Saab's

Scandinavian automakers Volvo and Saab are in a period of transition not seen in their more than 60 years of co-existence. But there are likely to be winners and losers in the current negotiations, and only one of the companies--Volvo--really has much chance to resurrect its fortunes.

A former Saab and Chevrolet insider, Steve Rossi, points out that the dramatic deal-making over the Trollhattan automaker is likely to end in tears, since the company today is a GM-dependent shell with moribund unlikely to stand on its own. And suitor Spyker Cars, which produces just 50 cars a year, would have a hard time single-handedly reviving its fortunes.

First, Volvo. Ford says that it hopes to sign an agreement with Zhejiang Geely Holding Group in the first quarter of next year, and have the deal closed in the second quarter. Geeley said it had "settled all substantive commercial terms" relating to the proposed acquisition of Volvo Car Corporation. "Geely is committed to work with all takeholders to complete the transaction in the best interests of all parties," said Li Shufu, chairman of Geely, which is based in Hangzhou.

The Chinese company is not nearly as old as Volvo. The latter was founded in 1927, but like many big conglomerates in China, Geely is an upstart--launched in 1986.

Geely said, "Should a stock purchase agreement be finalised, Volvo will retain its leadership in safety and environmental technologies, and will be uniquely positioned as a world leading premium brand to exploit opportunities in the fast growing China market."

The part about safety and environmental technology leadership probably has many in Sweden nervous, because China (with the possible exception of BYD) has not shown leadership in either area, and few Chinese cars would meet U.S. or European crash standards without modification. Ford said in a statement that the sale will ensure Volvo "has the resources, including the capital investment" to strengthen the business and build the global franchise. But it won't be Ford that's in charge.

Michigan-based auto analyst Erich Merkle told Marketplace that acquisition of Volvo would give Geely "access to other markets outside of China, and it would also allow them to, say, fast-track the safety and quality of their vehicles back home in China." That last part makes sense.

Geely made a splash in 2006 by turning up at the Detroit Auto Show. Li Shufu said at the time that the company could enter the U.S. market by 2008, but that obviously didn't happen. The nondescript silver CK the company displayed reportedly got 25 mpg in the city and 35 on the highway, and was targeted to sell for less than $10,000. Sophisticated it was not.

Saab won't have cultural barriers to overcome if it gets sold to Holland-based Spyker Cars, and the Russian money that worried GM is no longer on the table. One story has it that current funding is from a mysterious Dutch billionaire named Marcel Boekhoorn, but he actually denies it. But as Rossi explained to me, "It's irrelevant who owns Saab. There are too many providers and not enough marketplace." Saab could succeed, he said, only if it manages to build a devoted consumer base whose passion makes them willing to pay premium prices. Ferrari is a good example of that.

A decade or more of static product lines and rebadged GM product has dimmed Saab's luster as a boutique brand. As my colleague Jim Henry pointed out, Saab's standing in the J.D. Power and Associates Consumer Retention Study released this month is dead last with just nine percent brand loyalty--the lowest in the industry.

Rossi, who worked at Saab from 1978 to 1992 and served as marketing manager before leaving for Chevrolet, also says that Saab today is a gutted enterprise. Everything from warranty claims to legal services and human resources was handled by GM. "There's really no company left," he said.

Saab does have a refreshed 9-5 model in the pipeline, but a new owner would have to put new cars on a fast track. And that's a process of several years at least. "I have no idea how Spyker Cars could pull it off," Rossi said. "It's kind of ludicrous."