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Saab Likely to Lose Saab-ness with its China Plays

Saab-9-5: the company may have to downsize for China.
"China is the future," said Saab chairman Victor Muller, as he emerged from meetings in Beijing waving a memorandum of understanding with China's largest dealer network -- his second attempt to bail out the Swedish automaker with fistfuls of renminbi.

The future of Saab at this point, especially if it partners with an extensive dealer network, may be as a prestige player in the Chinese market, trying to stand out among the 100 or so automakers on the scene with its foreign cachet and colorful history. The Chinese love foreign brands, which is why General Motors (GM) sells more cars in China than in the U.S.

But in making that move, the company could lose a lot of what we know as Saab -- it's been a technology innovator for educated consumers, with a proud aircraft heritage that helped it gain a leading edge in safety and environmental friendliness.

Losing its cachet?
Saab has long traded on its Swedish roots and Scandinavian quirkiness (those ignition keys on the floor!). Saab has excellent technology in the Phoenix platform that underpins the new 9-3, but lacks the money to develop it further. Saab will struggle to keep its Trollhattan operations going, especially when making cars in China for the Chinese market starts looking like a much faster route to profit.

Volvo, now owned by Zhejiang Geely, is thinking the same way -- given Swedish labor rates and export costs, CEO Stefan Jacoby is contemplating making Saabs in China for the export market. Those cars wouldn't be Volvos as we know them.

Muller got serious with talks in China after his Russian play, selling a stake to colorful Russian investor Vladimir Antonov, was complicated by a lengthy European Investment Bank background check. Raising funds through Swedish property leasebacks is also taking too long for this CEO in a hurry.

China promises a more ready lifeline, though it's the lack of government approvals that sunk his venture with Hawtai Motor Group. The absence of those same official stamps could also kill Saab's new China deal with Pang Da Automobile Trade, which will provide $99.87 million for 24 percent of Saab's parent company, Spyker Cars.

Buying Saabs for company lots
Pang Da, which raised almost $1 billion with an IPO just last month, is buying Saabs as much as it's buying into Saab. The deal calls for the company to spend $63 million to buy cars in two waves. Right now, Muller is just trying to get Saab producing cars again, but this deal will inevitably make the company a bigger player in Asia than it's been able to be in the west.

There are some advantages to that because the Chinese market is huge -- it edged out the U.S. last year with 12 million sales compared to 11.6 million here. And Muller, who always thinks big, is seeing exponential growth -- up to 40 million by 2020. But Saabs that would sell to the mass market in China will have to be built to a price. They're unlikely to be in the vanguard of anything, and won't find much of a following abroad. It's the same reason Chinese automakers have had trouble building a sales beachhead in the U.S. -- the cars aren't up to western standards.

If the Pang Da deal goes through -- a big if -- Saab hopes it will gain a year's breathing room to plan a future. But as it tries once again to get to a new normal, Spyker still faces a fundamental problem. It didn't buy a whole company, just part of one. The years in the GM family had turned what was once a Swedish independent into a mere division, with many services, from billing to dealer support, absorbed into the parent company. Muller told me in an interview at the New York Auto Show that he knew this going in, but the reality of what it meant for daily operations soon became readily apparent.

All of this helps to explain why Muller is a frequent flyer to China. The auto industry's future may be over there, but Saab's definitely is.

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Photo: Saab
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