Automakers know better than anyone the time-tested truth that “the road to Hell is paved with good intentions.” But in the wake of Saab’s bankruptcy filing Wednesday, General Motors (NYSE:GM) must feel clairvoyant by selling off the brand in 2010 — just in time to get back a healthy chunk of its investment.
In 1990, GM paid $600 million for 50% ownership in the newly independent company, Saab Automobile AB, with an option to acquire the remaining shares within a decade (which they did in 2000 for $125 million). So for a total of $725 million, GM turned the troubled auto division of Swedish commercial vehicle manufacturer Scania AB into its wholly owned subsidiary.
The timing of the deal couldn’t have been better for GM, having just been spurned by Jaguar in favor of Ford (NYSE:F). The deal made sense on paper because it gave GM a European foothold from which it could take on entrenched luxury leaders BMW and Mercedes-Benz. But the road to synergistic success turned out to be paved with more sharp rocks than roses. Here are three things automakers learned from Saab’s bankruptcy:
Know When to Fold ‘Em
GM learned that in business, as in poker, sometimes you just have to play the hand you’re dealt. While Saab maintained a small but loyal following, it never achieved the success GM expected of it. Then in 2008, the global auto market crashed and burned, leaving plenty of scorched earth in Europe and North America. So GM, after being forced into bankruptcy by the federal government, had to divest itself of its less profitable brands, either by sale or by folding.
And that takes us to the matter of 8,000 Swedish jobs and a government that would do anything to save them — even to the point of guaranteeing a $547 million loan from the European Investment Bank for Spyker Cars N.V. to acquire Saab. So in a deal worthy of Monty Hall, GM shipped Saab back to Europe for $500 million.
Don’t Ignore the Writing on the Wall
Some classical scholars hold that, had ancient Babylonian king Belshazzar only heeded a disembodied hand’s warning, he might have survived conquest by the Medes and the Persians. Though no supernatural events accompanied Saab’s business plans, the past two years have measured the automaker’s decisions and found them wanting.
Customers were passionate about Saabs, governments were passionate about jobs and the company found the growth opportunity in China irresistible. But it’s hard to balance that many competing interests, and if anything goes wrong — say a slumping economy in Europe — gravity usually takes over.
In Saab’s case, the gravity of the situation is clear: Suppliers are owed more than $200 million, workers didn’t get their August paychecks, and the Swedish government that guaranteed a $547 million loan to Saab in 2010 might now be expected to throw even more good money after the bad. And while Chinese investment still is a potential, the government already denied one deal, and two others still are pending.
In Business, Passion and Shrewdness Are Seldom Compatible
After a legacy of building immortal Pontiacs like the GTO, Firebird and Grand Prix, former GM wunderkind John DeLorean struck out on his own to build his dream car. That dream turned into a nightmare when DeLorean struggled with a cash crunch while building his namesake vehicle. Ultimately, DeLorean’s fight for his dream car did not end well.
Obviously that’s not Saab’s story, but there’s a lesson to be learned here as well. Saab has a booster of similar passion in Victor Muller, chief executive and part owner of Swedish Automobile, which includes Saab. Muller, who according to Reuters is a fanatical collector of classic cars, purchased and revamped Spyker and returned it to liquidity.
It was for this same love of cars that he rescued Saab from closure by General Motors. But that kind of passion can make it hard to say goodbye even when all the signs point to an inevitable breakup. Saab doesn’t just need someone who loves cars to find its happy ending — it needs money, and lots of it.
Bottom Line
The Saab story shows that in the auto industry, it takes a lot more than a king’s warrant and an iconic griffin to stand tall in tough times.
As of this writing Susan J. Aluise did not hold a position in any of the stocks named here.
