Why Saab is doomed for the junkyard

GM will opt for killing the Saab brand, even if it costs the company more in the short term.

By Louis Navellier Dec 1, 2009 3:25PM

Louis NavellierWill GM kill Saab rather than hand over technical knowledge from any of its related brands to a foreign competitor?

 

Today we'll get our answer, but as for me, my money is on an announcement that the Swedish auto company is doomed for the junkyard. General Motors will likely send Saab down the same road taken by Pontiac, Oldsmobile and other dead GM brands in an effort to shed underperforming brands but still hold on to proprietary technologies. Competitors are eager to pop the hood and check out GM's auto secrets, and I think GM will elect to unwind Saab on its own at considerable expense rather than sell it and let go of some trade secrets.

 

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The future of Saab has been thrown into doubt after a consortium led by Sweden's Koenigsegg pulled out of talks to buy the General Motor's brand. Koenigsegg blamed the collapse on delays in closing the deal after months of negotiations with the Swedish government over financial support and issued the following statement: "Unfortunately, delays in closing this acquisition have resulted in risks and uncertainties that prevent us from successfully implementing the new Saab Automobile business plan." The Swedish government said on Tuesday it hoped Saab would survive, but it still was not prepared to save the carmaker and that the company's future depended on the emergence of another buyer.

 

One of GM's leading options for Saab is to simply kill it. GM had been running Saab for the past two decades but failed to make any money on the unit during its run as owner. Saab's two main models, its 9-3 and 9-5 sedans, shared technology with other GM vehicles, but they have not been fundamentally redesigned in several years. As with many GM divisions, Saab faced high labor costs as well as currency exchange due to its Swedish manufacturing base.

 

This is the second blow that GM experienced trying to sell selected brands since Roger Penske pulled out of buying Saturn back in October. GM's chief executive, Fritz Henderson, said the company was "disappointed" by the niche carmaker's decision and that GM would advise on its further plans for Saab today. The Saab sale collapse comes as talks continue between Ford Motor and the parent group of Chinese carmaker Geely to sell Volvo, Sweden's other best-known car brand for nearly $2 billion. 

 

In February, GM said it was seeking a buyer for Saab, Saturn and Hummer as part of a drive to pare down its product portfolio as it prepared for its Chapter 11 bankruptcy protection. So far, GM has only been able to sell its Hummer brand to a Chinese company, but its sale to Sichuan Tengzhong Heavy Industrial Machinery Company has been delayed until December due to a slower-than-expected approval process by the Chinese government.

 

A few months ago, it seemed GM had plans to sell Vauxhall and its German sister company, Opel, to Canadian car parts manufacturer Magna International. But the Detroit automaker scuttled the plan, holding on to these companies despite the fact that they are operating at a loss.

 

It seems like GM is reluctant to share its know-how with companies that could gobble up its market share while the company languishes in bankruptcy. But if General Motors clings to operations that are bleeding cash, the long-term results could be worse than if General Motors just unloaded some sought-after operations for a short-term influx of cash and a streamlined automaking mission. I am convinced that GM will opt for killing the Saab brand, even if it costs the company more in the short term, rather than give opponents a leg up.

 

Whatever today's announcement, only time will tell if this is the right move. If GM takes years to return to profitability, clearly it has bigger problems than protecting trade secrets. But if the company bounces back strongly, killing Saab rather than selling it will seem like a very prudent move.

 

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