Saab Future in Doubt as Koenigsegg Withdraws Offer

General Motors (GM) announced yesterday morning that a deal to sell its struggling Saab brand to Swedish "supercar" manufacturer Koenigsegg had fallen through. The news came as a surprise to GM's top management, who had hoped to negotiate a deal to sell the struggling luxury car brand by the end of the month. "We're obviously very disappointed with the decision to pull out of the Saab purchase", GM chief executive officer (CEO) Fritz Henderson said in a very brief statement announcing Koenigsegg's decision. "Given the sudden change in direction, we will take the next several days to assess the situation and will advise on the next steps next week."

In an interview broadcast by CNN, Christian Von Koenigsegg said that the consortium had been forced to back out of the deal as a result of the complexities involved and extended timeframe. Speaking to CNN's Richard Quest, Von Koenigsegg said: "In this plan there were several elements of financing from ourselves, also seller financing, and the EIP, European Investment Bank, was a part of that. So, also we have a partner from China, BAIC [Beijing Automotive Industry Corporation], which would take are of the Chinese distribution, but also as a financial partner." Von Koenigsegg reiterated that the necessary financing was in place, but attempts to pull the many different parties towards an agreement led to uncertainty for Saab, jeopardising the future it sought to secure. "We cannot overlook the implications of not knowing when to start. And what that will affect Saab. Therefore we have to pull the plug", Von Koenigsegg added.

CNN's Quest also interviewed Jan-Eke Jonsson, managing director of Saab Automotive, who underlined the fact that Koenigsegg had expended many months of effort and not inconsiderable finances in trying to pull the deal together. Jonsson said: "I think it is first of all very important to understand that this a very complicated transaction, with many different players involved, including of course, the European Investment Bank, the National Debt Office of Sweden, as well as commercial parties. And then Koenigsegg was basically of the opinion at this point that they were not able to pull all the parties together towards a time line that they felt was necessary."

Minority partner BAIC released the following statement: "With regard to Koenigsegg's withdrawal, we will carefully evaluate this project anew and make appropriate arrangements…Beijing Automotive Industry Holding Corp. states that becoming more international...has always been our strategic focus." However, it remains unlikely that BAIC will make a standalone bid for Saab as the complexities over intellectual property rights are likely to rule out any perceivable gains.

The GM board is set to meet next Tuesday (1 December), after the Thanksgiving holiday, to discuss what possible actions are now open to the company with regards to Saab. Saab had announced last week that it was looking at closing nearly a third of its 218 dealerships throughout the United States. At the time, GM spokesperson Ryndee Carney said that if an agreement could not be reached, the company would close the Saab brand and all its dealerships as well. That was reiterated in the actual termination agreements that Saab dealers signed back in June when GM went through the bankruptcy process, according to Saab dealers interviewed by Automotive News. However, Carney said that the board's decision next week will be the final one on what will happen with the brand. "I don’t feel that it would be accurate to say definitively that that's what's going to happen…that the dealerships would be closed", she said yesterday.

Outlook and Implications

The decision by Koenigsegg to pull out of a deal looks to have sealed Saab's fate and consigned the brand to the burgeoning scrapheap of automotive brands. GM has always maintained that it will pull funding for Saab by 31 December 2009 and it looks unlikely that this deadline will be extended. The reasons for the deal falling apart are largely rooted in two camps. The Swedish government has been intransigent in its dealings with Saab and slow in offering the necessary guarantees to the European Investment Bank (EIB). Beijing Automotive's involvement will also have clouded the waters for GM and made agreeing the technology licensing necessary to safeguard Saab's short- and medium-term future a complex and drawn-out affair. Saab's 9-3 and new 9-5 models are based on the old Epsilon and new Epsilon 2 platforms, respectively, and are now totally reliant on GM powertrain with the demise of the old 9-5. BAIC no doubt wanted access to this technology and crucially planned to open up Saab distribution in China, where GM has an extensive and highly successful joint venture (JV) with BAIC's rival, Shanghai Automotive. GM sells large numbers of both platforms in China under the Buick brand and it is unlikely that GM would view BAIC's involvement as positive in this light.

This is ostensibly the second failed brand sale that GM has attempted this year, with the first having been the Saturn brand's failed sale to Penske Automotive Group. That venture reportedly ended before it had started because of the inability of Penske to find a supplier for vehicles beyond the two-year limit that GM had set for its own supply of vehicles for the Saturn brand. No other suitors have stepped forward to express an interest in the Saab brand and it looks unlikely that any will, other than the aforementioned BAIC, and it seems far-fetched to think GM would license the 9-3 and 9-5 to a rival Chinese carmaker. Add to this the U-turn on the Opel sale and it would appear that GM's current management are unable to organise a sale of any sort. However, look beneath the surface and what it actually means is that the new GM is not prepared to sell its intellectual property to allcomers for the sake of some short-term gain. This underlines the tough bargaining stance now adopted by GM's management team and is in stark contrast to the previous regime. For the sake of GM's future competitive advantage, this attitude is the right one, although it is unlikely to win many friends in the short term.

As for Saab, GM’s mismanagement of the quirky Swedish brand stretches back decades, and the company never received the necessary vision or investment to enable it to truly challenge Europe's premium brands or gain recognition in key export markets such as the United States. Furthermore, in desperation to gain critical mass, GM resorted to some tacky makeovers in a desperate attempt to gain traction in the U.S. market. The disastrous consequences of this badge-engineering resulted in the "Saaburu", or 9-2X, based on a Subaru Impreza, and the Saab 9-7X, or a Chevrolet Trailblazer with a Saab front end nicknamed the Trollblazer. Such crass and mindless management of the brand effectively consigned it to the history books long before today. The sad irony for Saab is that the new 9-5, which is all but ready to roll off the production lines, may have at last given Saab something to compete with. The striking new car has received warm reviews and, based on the acclaimed Insignia, is likely to drive as well as it looks. However, in business timing is everything, and for Saab time has simply run out.