Who killed Saab Automobile?

14 January 2012

The article at a glance

Saab Automobile “collapsed under weight of its own contradictions” says a report released today, 20 December 2011. The report, by Matthias Holweg …

Category: Misc news News

Saab Automobile “collapsed under weight of its own contradictions” says a report released today, 20 December 2011. The report, by Matthias Holweg of Cambridge Judge Business School and Nick Oliver of the University of Edinburgh Business School, examines the 62-year history of Saab Automobile from its creation in the 1940s to its bankruptcy on 19 December 2011. As production ends at Saab’s only factory, having produced a total of 4.5 million vehicles since 1947, all of the 3,700 employees now face redundancy.

Current attention is on Saab’s lost opportunities with would-be Chinese owners, but the viability of Saab was questionable long ago. Saab could have been for General Motors (GM) what Audi became for Volkswagen (VW): a premium, fully integrated brand with a clear, distinct image. Here both GM and Saab carry responsibility for the failure: GM for its clumsy handling of Saab, Saab for its stubborn resistance to integration with GM Europe.

Yet even with the best will in the world, the particular attributes of the Saab brand made integration a difficult trick to pull off. For many years Saab was caught in a ‘catch-22’ situation. It was a niche auto producer that needed greater economies of scale to survive in an industry in which scale was increasingly important. Yet scale diluted the very individuality that was a hallmark of the Saab brand. Although Saab needed a parent company such as GM to achieve this, the reality of sharing platforms and components with other GM models diluted the appeal of the Saab brand.

Faced with its own bankruptcy, GM sold Saab to Spyker Cars in early 2010. A lightly capitalised specialist sports car maker that made less than 50 cars a year was always going to struggle to run Saab, even without Saab’s other difficulties. Everything depended on the new 9-5 model, and when sales of this failed to take off it took only months for Saab to run out of cash, which it did in April 2011.

Spyker, by then called ‘Swedish Automobile’, frantically tried to find an investor for Saab. Despite a rollercoaster ride of hope and despair, all came to nothing. China’s Pang Da and Youngman offered to buy Saab, but this was blocked by GM. GM already has a major partner in China, Shanghai Automotive Industries Corporation (SAIC). Consequently, it is not surprising that GM sought to protect its business interests by preventing its technology from passing to competitors to SAIC, especially as China, is one of its most important and fastest-growing markets.

Even if GM had not blocked the sale to Youngman and Pang Da, Saab sales in China would have had to grow implausibly quickly for the company to survive, especially in the light of the new Saab 9-5 failure to take off in Saab’s traditional markets of the UK, US and Sweden.

Saab graphically demonstrates that a strong brand alone is no guarantee of success. Limited numbers of enthusiastic customers cannot keep a company alive in industries that rely on scale economies – no matter how iconic the brand.

Notes for editors

Matthias Holweg

Matthias Holweg is Reader in Operations Management and Director of Research at Cambridge Judge Business School, University of Cambridge, UK. He also is a visiting researcher at Chalmers University, Sweden. Email: [email protected].

Nick Oliver

Nick Oliver is Professor of Management and Head of the University of Edinburgh Business School, Edinburgh, UK. He is also a fellow at Cambridge Judge Business School, University of Cambridge. Email: [email protected].