IHS Global Insight Perspective | |
Significance | General Motors (GM) has signed a letter of intent with Koenigsegg to sell Saab, according to various media reports. |
Implications | The Swedish supercar maker has Norwegian backers and the support of the Swedish government to instigate European bank loans, as well as the money allocated from GM, giving the company a fighting chance in the short term. |
Outlook | In the longer term, the halo effect of the Koenigsegg brand—its experience in advanced fuel-saving technologies and the esoteric Swedish brand values it would bring back to Saab—could see the company survive as a small/medium-sized volume premium brand. |
General Motors (GM) is set to announce that it is in exclusive talks over the future sale of Saab with the Swedish supercar manufacturer Koenigsegg, according to reports citing an unnamed source close to the negotiations. Koenigsegg, backed by a group of Norwegian investors, has become the preferred bidder, beating bids from two U.S. investment companies, Renco and Merbanco, with some reports saying the company has signed an agreement with GM yesterday. Swedish television station SVT reported on its website that Koenigsegg had signed a letter of intention to buy Saab, citing anonymous sources, adding that negotiations to finalise the details of the deal would last months.
Koenigsegg, a manufacturer of highly exclusive sports cars based in Angleholm in Sweden, was set up in 1994 and produces some 20 of its CC, CCX, and CCXR sports cars a year, which sell for more than 1 million euro (US$1.4 million) each. According to an Agence France-Presse (AFP) report, the Swedish government has authorised the Swedish Debt Office, which acts as a public bank to the state, to discuss the guaranteeing of a 500-million-euro loan made to Saab by the European Investment Bank (EIB). "We have always said that the debt office could start negotiations on guaranteeing the loan when Saab has a new owner," State Secretary for Business Joran Hagglund said, quoted in a government statement, adding: "With today's decision we are well prepared for that." This follows a similar move approved for Volvo Cars earlier in the week (see Europe: 8 June 2009: EC Approves EIB Loan to Volvo). The loan to Volvo, again backed by the Swedish government, is part of a wider initiative from the EIB to fund the development of green technology in the wake of stringent emission regulations imposed by the European Union (EU). Volvo plans to use the 500-million-euro (US$710 million) loan to part-fund a 1.9-billion-euro project to develop emission reductions and energy efficiency in its future cars.
If approved, the EIB loan will join GM's own contribution of US$500 million in assets and cash, plus the production equipment needed for the new 95 model. This will include around US$150 million in cash already with Saab, according to the Financial Times. However, the EIB loan comes with restrictive covenants that expressly insist the money be used in the development of future emission-lowering technology. The GM loans also come with strings attached as, according to the sources, under the terms of the deal the new owner is to pay GM back if it succeeds in turning around Saab and making it profitable.
Outlook and Implications
Koenigsegg certainly has its work cut out as the Saab brand is considerably short of the numbers needed to garner the economies of scale of a mass manufacturer, selling 93,000 units in 2008, and short on brand value to make it profitable as a premium car maker. It is also long overdue a model line-up overhaul, with the 95 some three to five years late in terms of its natural model cycle. The new 95 model, itself based on the new Opel Insignia platform, also enters a dwindling segment as the rise of the mid-sized sport utility vehicle (SUV) continues to inhibit sales of traditional sedans, as fellow Swedish rival Volvo adequately demonstrates with its new V60 model.
Furthermore, Saab has just two platforms and is totally reliant on GM Europe for both the 93 and 95 underpinnings, much of the development, and the powertrain technology. As GM is in the process of selling off the majority stake in GM Europe, possibly to Canadian firm Magna, Saab's immediate and near-future fate is tied to that of the resultant company. GM naturally has an interest in seeing Saab survive, as well as a significant stake in the new GM Europe, so licensing agreements and future supply will be in little doubt, providing the spun-off Opel/Vauxhall company can become a going concern.
However, and importantly, this is where Koenigsegg can truly bring something to the table. Koenigsegg is already extensively involved in "green technology" development programmes. Apart from the development of the Koenigsegg flexfuel CCXR supercar, the company is also active in development programmes in plug-in electrical car systems and next-generation combustion engine technologies.
Furthermore, Koenigsegg has its proprietary engine technology: it does not license engines from a big car maker elsewhere, as many small-volume supercar makers do, and thus has vital engineering expertise and experience in this field. Koenigsegg also holds patents within engine technology, including the Rocket catalytic converter that reduces backpressure and size, and a Supercharger response system that eliminates the need to use bypass valves, which in turn reduces consumption and improves engine response time. All of these technologies can be developed to improve existing engines supplied to Saab, possibly licensing them back to Opel/Vauxhall. Given the likelihood of a US$500-million loan from the EIB to develop such technology, the mist is beginning to clear as far as the company's business rationale.
The other less tangible, but equally significant, advantage Koenigsegg will bring to the table for Saab is its image, brand credibility, and its "Swedishness". Koenigsegg is a super exclusive brand, but equally it is a perfect manifestation of esoteric Swedish design in its unique approach to its cars. Saab used to embody these Swedish values in the years prior to GM purchasing and then mismanaging the brand for nearly 20 years. There is a lot of good will towards Saab in Europe and it would not be far from the realms of imagination for a small, stylish, environmentally friendly, safety-conscious premium brand like Saab to become successful in the rapidly changing and evolving European market. The trick will be to position the brand at a price point where it can become profitable at the 120,000- to 150,000-unit mark and offer enough "unique" technology and design identity to make the brand compelling.
That said, the short-term hurdles are still huge and maintaining its fragile image and recovering some volume to limit cash burn through a successful launch of the new 95 will be first on the agenda, neither of which is straightforward in the current climate. However, given a fair wind, the fact that the administration has cut much of Saab's debt, and the addition of significant external investment in a company with the technical nous to use it, the reinvention of Saab is not beyond all possibility.