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Saab Gets a Chinese Lifeline, but It's Not Safe Yet

Saab needed a lifeline, and it got one just in time from China, also home to Volvo's savior, Zhejiang Geely. The deal was undoubtedly the best one the Swedish carmaker could get under the circumstances, and it has advantages for both parties.

Saab's alliance with Chinese automaker Hawtai Motor Group, announced Tuesday morning, had the air of inevitability around it. Saab owner Spyker Cars was backed into a corner without enough cash to make payroll, production was halted, and given the company's drain on General Motors' coffers, no western suitor was likely to come calling.

Given that it was in a buyer's market, Saab got a good deal. It gets $177 million up front (and a $44 million loan) for a non-controlling stake. That should allow the company to reopen its Swedish factory -- in a week, said Saab CEO Victor Muller (right) at a Beijing press conference. It was a big turnaround from a week ago, when things looked pretty grim.

Saab now has several emergency revenue streams, including a $43 million infusion from the European Investment Bank (earmarked for specific production programs), and likely investment from Russian banker Vladimir Antonov, who is favorable to the Chinese deal.

Saab has been given a breather, but it should stay in crisis mode for a while. It still desperately needs to renew its product line and to produce some strong-selling smaller cars.

Saab isn't Volvo, and this deal's different
How could there not be comparisons with the sale of Volvo to Geely? But the deals are quite different -- Saab sold an up to 30 percent equity stake, not a majority interest in the company. Geely is a top player in China, and Hawtai (just a decade years old) is a smaller company, without much of a track record producing its own cars. Its previous foreign alliance was with Hyundai, resulting in a lot of Santa Fe and Terracan SUVs produced under license.

In desperate straits, Spyker probably would have taken investment money from Bernie Madoff. But even if it is a grasping-at-straws move, the Hawtai deal could work out well for both sides. Among other things, Saab gains a solid toehold in the Chinese market, something Muller has been longing for.

Hawtai, which has the capacity to produce 350,000 cars annually, gets something more intangible -- institutional knowledge and international recognition. Like Volvo, Saab builds ultra-safe cars with appeal to western buyers -- and safety is a major weakness in Chinese cars.

Hawtai has been content to serve the huge Chinese market, but its ambitions undoubtedly extend to international sales. A newly focused Hawtai, drawing on Saab's talent, could conceivably sell cars in the U.S. and Europe. That's actually far more likely than Spyker selling large volumes of Trollhattan-produced SUVs in China -- an idea Muller floated during a call with the media.

The Chinese take on foreign investment
Chinese automakers get two things out of western alliances, says analyst Sam Jaffe of IDC Energy Insights:

They're after manufacturing knowledge, and they're willing to pay highly for it. They want the institutional memory about how to build cars well. The second thing is the brand: Chinese consumers are picky about brands, though the Saab name probably doesn't have the same cachet in China as other western automakers.
Chinese automakers need to stand out from the pack. There are 100 Chinese carmakers now, and a survival-of-the-fittest shake-up resembling the American consolidation in the 1920s and 1930s (eventually leading to the Big Three) seems inevitable. An association with a foreign brand will help when the crunch comes and kills off half of them.

Given Hawtai's production capacity, it seems likely that Saab will cut costs by eventually producing parts, and maybe engines or transmissions, at its facilities in China. That's sensible. But Muller was quick to reassure his Trollhattan line workers that their jobs are not at risk. "This will in no way impact Saab production in Sweden," he said, adding that the company could actually add domestic jobs because of orders from China.

Chinese Saabs should be made in China
Maybe. But another idea Muller floated -- producing China-bound cars in Sweden -- seems totally off-base to me. Unless the Saab name had huge name recognition in China -- which it doesn't -- the economics of that concept are totally wanting. Production and transportation costs would be exorbitant compared to building those cars in China.

Muller told the Detroit Bureau's Paul Eisenstein that very large SUVs have cachet in China, and that some new Saab larger than the midsized 9-4X could sell there. Yes, but it should be built by Hawtai and badged as a Saab for Chinese sale only.

For the western market, what Saab needs is credible smaller cars, including the all-new 9-3 penned by ex-Ferrari designer Jason Castriota, hired by Saab to create some pizzazz. And after that, the compact 9-2. Castriota also created the fanciful PhoeniX sports car (right), which Saab showed off at the New York Auto Show. Back stage there, Muller showed me (on his cell phone) a production concept for the PhoeniX, minus the silly gullwing doors. If memory serves, it looked something like the Audi TT, and was grounded enough to actually sell.

Auto analyst James Bell says that Saab's financial breather should allow it space to develop some of its innovative concepts, including the hybrid four-wheel system (with electric power only for the rear wheels) that was shown on the PhoeniX. Says Bell:

Because of the hits the brand has had, its equity is damaged as a me-too product competing with Volvo or Lexus. Saab has to re-invent itself as a different kind of car company to move forward.
That's true. Saabs can't be just good enough, because wary buyers will choose to go elsewhere. Meanwhile, another part of Saab's reinvention is a 50-strong fleet of battery electric 9-3s, whose fate was also hanging in the balance. Now those too can move forward while Saab writes the next chapter in its long history.


Photos: Jim Motavalli
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