Saab Ivestors Face Tough Road Ahead

DETROIT JUne 16, 2009; Tom Krisher and Louise Nordstrom writing for the AP reported that for the new owners of Saab Automobile to make money selling small numbers of cars across the globe, they have to return to the Swedish automaker's roots, industry analysts say.

Somehow, a consortium of investors led by custom sports car maker Koenigsegg Automotive AB must restore Saab to the quirky, cutting edge and reliable brand once favored by professionals who wanted to look smart rather than wealthy.

"It was seen as a discerning choice," said Tim Urquhart, senior automotive industry analyst with the consulting firm IHS Global Insight in London. "It was a professional's vehicle, a doctor's or an architect's. A quality vehicle, but not an obvious statement like Mercedes or BMW."

GM announced Tuesday that it has struck a tentative deal to sell the storied brand, which started as a Swedish aircraft maker. The sale is to include a $600 million funding commitment from the European Investment Bank, guaranteed by the Swedish government. Additional funding would be provided by GM and the new investors.

GM gave no details on the financing but said the sale should close in the third quarter. The troubled Detroit-based GM initially will get no return on its investment and apparently will have no stake in Saab. If the new company turns a profit, GM could receive the $150 million in cash that Saab has left over from GM's ownership, plus the value of Saab's assets.

The lack of an immediate payoff for GM is similar to the position of Chrysler LLC's former owners, New York private equity firm Cerberus Capital Management LP, which exited the Chrysler bankruptcy with nothing to show for its $7.4 billion investment.

Koenigsegg, (KOH-nigs-egg), a tiny company which produces only a dozen super cars a year costing more than $1 million each, was founded in 1994 by von Koenigsegg, a Swedish sports car fanatic and entrepreneur who remains chief executive. Its factory and headquarters are located at a former air force base in southern Sweden.

Analysts say GM, which bought half of Saab in 1990 for $600 million and the rest for $125 million in 2000, was unable to differentiate the brand from its other products or find a sales niche.

Von Koenigsegg, in an interview with Swedish television, seemed to agree, saying that the new owners would try to restore some of the brand's heritage while finding a place in the market between upscale and mainstream.

"This is neither a luxury or a people's car, but it has its own niche — a bit of postmodern comfort, sporty, but with environmental thinking," von Koenigsegg said. "We want to capture the Swedish aspect too. GM had a bit more of an international approach, and Saab drowned a little bit in that context."

GM CEO Fritz Henderson, in a Web chat with reporters on Tuesday, said Saab was never profitable since the acquisition, despite great vehicles and loyal customers.

"We ran out of money just on the eve of launching the newest generation of Saabs, which we think will be outstanding," he wrote, adding that GM will continue to make vehicles for the new company as well as provide engines, transmissions and other technology.

IHS analyst Urquhart said GM didn't seem to know what to do with Saab, and failed to set its models apart from mainstream brands. The Saab 9-7X sport utility vehicle, for example, is very similar to a Chevrolet TrailBlazer, and the 9-3 midsize sedan is a close relative of the Pontiac G6.

"Without being too rude about it, GM sucked all the brand value out of it," Urquhart said.

But Max Stephenson, owner of a Saab-Cadillac dealership near Milwaukee, said GM made Saab interiors far more luxurious and the performance better than other brands. All he has to do to convince customers is get them to drive one, he said.

"When you get people behind the wheel and you're in the trenches, they're like 'Wow, this is a lot more than a TrailBlazer," Stephenson said of the 9-7X.

But he said the models were a bit too pricey, especially when money for leasing dried up when credit got tight.

Tom Libby, an independent Detroit-area auto analyst, agreed that Saab lost its uniqueness in the now-crowded luxury segment and will have to find a new niche.

"We know that safety is addressed. We know that performance is addressed. We know that pure upscale luxury is addressed," he said. Saab has to find a "white space that's not covered. I don't know what that is right now."

Urquhart said the company must return to its roots of innovation. Saab was among the first with front-wheel-drive and turbocharging.

Yet it will be difficult, he said, to make money with Saab's historically small sales volume of around 130,000 units per year. That volume, Urquhart said, has held steady since GM's acquisition, dropping to 92,000 last year in the global automotive slump.

Von Koenigsegg dismissed criticism about his company having no experience in large-scale production, saying it isn't needed because Saab has that knowledge. He said Koenigsegg can contribute green solutions and engine technology.

Saab employs about 4,000 worldwide, while Koenigsegg has a full-time staff of 45.

Shareholders in the new company were listed as Koenigsegg Automotive AB with a 23.4 percent stake, von Koeningsegg's firm Alpraaz AB with 42.6 percent, Norwegian holding company Eker Group with 11.8 percent and San Diego-based Mark Bishop with 22.2 percent.

Saab went into creditor protection Feb. 20, and analysts say it remains to be seen whether the new group has the money to restore its health. Even Sweden's Enterprise Minister, Maud Olofsson, who said she was pleased to see new owners, said they will need to show proof of resources.

Koenigsegg told Swedish news agency TT that the group has the resources it needs.

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Associated Press writer Malin Rising in Stockholm and Auto Writers Dan Strumpf in New York and Kimberly S. Johnson in Detroit contributed to this report.