Saab Automobile AB

FOUNDED: incorporated in 1947

Contact Information:

HEADQUARTERS: S-46180
Trollhattan, Sweden
PHONE: (46)520-85000
FAX: (46)520-35016
URL: http://www.saab.com

OVERVIEW

Saab Automobile AB celebrated its 50th anniversary of automobile production in 1997, facing enormous challenges in an increasingly competitive import luxury car market. Founded by SAAB (Svenska Aeroplan Aktiebolaget), one of the oldest automotive and aeronautics manufacturers in the world, Saab Automobile began design and production of automobiles in 1947 with marked success. From the start the company concentrated on high performance, technological innovation, and a distinctive appearance. With the entry of new upscale European cars on the market in the mid-1980s, Saab began losing money. In 1990 General Motors Corporation (GM) purchased half of the floundering Saab Automobile for approximately $500 million; the other half of the company was owned by Swedish holding company Investor AB.

To survive in the highly competitive upscale import car market, Saab began to implement new strategies including improving factory productivity and quality, updating classic car models and developing new models, reviving its image through improved marketing and innovative advertising, and rebuilding its crumbling dealer network. Saab Automobile hoped these efforts would return it to earlier days of prosperity when it had earned a highly distinguished reputation.

COMPANY FINANCES

Saab Automobile sells its cars to young, well-educated, well-paid professionals. A typical Saab consumer is 45 years old (younger than the average purchaser of any other luxury automobile) and, on average, earns $100,000 a year. Eighty-two percent of Saab customers are college-educated and more than 50 percent have at least a master's degree.

In 1996 Saab's sales totaled almost $3 billion, an increase of 1.4 percent over the previous year, and Saab's net income reached $35.4 million. European sales accounted for 64 percent of Saab's total sales that year, while American sales reached 29 percent. Saab sold fewer than 100,000 cars in 1996—just 95,406 worldwide, down from 97,437 in 1995. For all of 1996, Saab lost $154 million, which the company blamed largely on marketing costs. More than 28,000 of the automobiles Saab sold that year were sold in the United States, an increase of 11 percent from 1995. For the first half of 1997, Saab had a pretax loss of $74.5 million, down further from a loss of $53.0 million for the same period the previous year. The United States is Saab Automobile's largest single retail sales market. In the United States, the company sold 28,450 cars, about 28 percent of its worldwide total, in 1997. Saab Automobile spokesman Olle Axellson said Saab expected sales "to exceed 100,000 cars in 1997" and, indeed, that year Saab sold 100,300 automobiles worldwide. By the year 2000 Saab aims to increase worldwide sales 50 percent, to 150,000 cars.

ANALYSTS' OPINIONS

Many critics have noted that without GM's backing, Saab Automobile would likely have gone under. Even with its introduction of the 9-5 model, one of the two models in its new 9-series that will eventually replace the 900 and 9000 models, skeptics have claimed that Saab still won't have much product to sell, given its current phasing out of the 9000. Analysts have agreed that Saab needs more than two models to be truly competitive. Nigel Griffiths, European auto analyst at DRI/McGraw-Hill, has claimed that reaching the number of retail sales necessary for Saab to make a profit is "just not going to happen with a two-line range." While some have taken an even dimmer view, referring to Saab Automobile as GM's "pig in the poke," Karl Ludvigsen, chairman of London-based Ludvigsen Associates Ltd., has stated that "for the money, GM acquired a valuable property." Most agree that the success of Saab's 9-5 luxury sedan, the model intended to replace the 9000, could be critical to the future of Saab Automobile. GM executive vice president and president of International Operations Louis R. Hughes has claimed that if the 9-5 model were to fail "then the future of the company is really dark indeed. But if it is successful, it completely turns the company around." For this reason, Den Danske Bank analyst Hans Westerberg has said, "I am surprised that [Saab is] not making more of the introduction." Still, within a few days of its launch of the 9-5 in September 1997, Saab claimed it received orders for 15,000 9-5 cars, which made this the company's most successful launch ever.

HISTORY

Saab Automobile AB descended from a line of judicious mergers. Its original parent company was SaabScania AB, born in 1969 as a merger of Saab Aktiebolag and Scania-Vabis, the latter of these a 1911 merger of early Swedish automobile company Scania and railroad car and automobile maker Vabis. Saab Aktiebolag began as "SAAB," an acronym for "Svenska Aeroplan AktieBolaget," Swedish for "Swedish Aircraft Company." This was 1937 and as the threat of another European war loomed large, Sweden found itself lacking defenses to protect its neutral status and in need of a domestic aircraft industry that could supply its forces with military planes and so, in April of that year, SAAB was formed. With plants in Linkoping and Trollhattan, SAAB began working on the Svenska B-17 dive bomber, which had its first flight in 1940. As World War II and, consequently, Sweden's need for military aircraft neared an end, SAAB began to develop plans to manufacture commercial automobiles. Just prior to World War II, small European cars had enjoyed a popularity in Sweden that SAAB now hoped to capitalize on. After a prototype of the first SAAB automobile was shelved in 1947, the company introduced a stylish, streamlined, high-performance model, the 92002, designed to reflect the aerodynamic shape of an airplane wing. This design model would characterize SAAB automobiles for the next 30 years. During this time, SAAB continued making airplanes, introducing its first military fighter jet in 1949.

In 1950 SAAB entered its model 92002 automobile in the Swedish National Trophy Rally and it took first place in both the men's and women's classes. Throughout the decade SAAB continued improving its original automobile design, replacing the two-cylinder, two-stroke, 25-horse power engine with a three cylinder, two-stroke engine with an output of 33-horse power. By 1955 SAAB had become the most popular car in Sweden. The following year SAAB created an American subsidiary, later called Saab Cars USA, Inc., to introduce SAAB automobiles to the world's largest automobile market. Also in 1956 SAAB entered three model 93 automobiles in the Great American Road Rally, a 1,500-mile race over snow-covered roads in the northeastern United States, and one of the SAABs finished as the overall winner. Because it was a small, foreign competitor in the enormous U.S. market, in spite of the attention generated by this win, SAAB's sales were initially slow. At the end of the 1950s SAAB introduced its model 95 station wagon featuring a new four-speed transmission. (Early ads depicted the model as "a car that doubles as a bed.") During the 1960s SAAB models continued to win Swedish and international road rallies, including two consecutive Monte Carlo rallies, and in 1966 SAAB introduced its elegant two-seater sports car, the Sonnett II. This model was an updated version of the 1956 SAAB Sonnett Super Sport, an uncomfortable, noisy, rough-riding roadster originally planned as a rally competitor. Through the 1960s SAAB extended its concerns beyond cars and aircraft into the areas of satellites, missiles, and training and energy systems. In mid-1965 SAAB changed its name to Saab Aktiebolag ("SAAB" was no longer treated as an acronym), and it began discussing a merger with automotive company Scania-Vabis.

Scania-Vabis began in 1911 as a merger of the Scania and Vabis companies, two early Swedish vehicle manufacturers. Scania could trace its roots to the English bicycle manufacturer Humber who built a factory in Malmo, Sweden, in the early 1890s. Within the decade, Swedish interests purchased the plant, called it "Masinfabriks AB Scania," and initially used it to produce vacuum cleaners, paper machines, and bicycles, including a motorized bicycle with a gasoline-powered engine. In 1900 Scania incorporated and the following year, it began to focus on manufacturing automobiles. By 1903 Scania produced three models of cars considered extremely advanced for their time. In 1911 Scania merged with Vagnfabriks Aktie Bolaget in Sodertalje, known as "Vabis." Established in 1891 as a railroad car manufacturer, in 1897 Vabis built the first Swedish automobile, an experimental kerosine-powered, 9-horse power model. Scania-Vabis, as the new company was called, began concentrating on manufacturing buses and large trucks, and by 1925 it ceased making automobiles entirely. In 1936 Scania-Vabis introduced its first diesel engine, and for the next three decades, it continued making heavy vehicles.

In 1969 in one of the largest commercial deals ever negotiated in Sweden, Saab Aktiebolag and Scania-Vabis merged to form Saab-Scania Aktiebolag, otherwise known as "Saab-Scania AB," officially registered in June 1970. During the 1970s, in an effort to gain more of the U.S. automobile market, the company expanded its marketing campaign and attempted to distinguish itself from foreign cars already successful with prosperous Americans, like those made by BMW, Mercedes-Benz, and Volvo. By the end of the decade Saab-Scania's U.S. automobile sales had increased by 19 percent. In 1980, using an innovative method of modular construction, SaabScania developed and produced a line of Scania trucks that became exceedingly popular in the United States. In 1984 Saab produced a redesigned line of cars in its 9000 series, which also became very popular.

In 1987 Saab-Scania's public relations department sent small Saab-shaped boxes of 48 Godiva chocolates to journalists to commemorate 48 consecutive months of Saab's U.S. sales increases. It would turn out that Saab's U.S. sales peaked in 1986 at 48,181; within seven years, sales would sink to a low of 18,783. With a narrow product line; limited research, development, and marketing funds; and uneven product quality, Saab-Scania's automobile division was establishing itself as a chronic loser, and by the end of the decade, it was in deep trouble. Meanwhile, in the late 1980s automobile giant General Motors Corporation (GM) was seeking to purchase British carmaker Jaguar Cars Ltd. but was outbid by rival Ford Motor Company in 1989. By year's end, GM won the right to purchase 50 percent of Saab-Scania's automobile division and, in 1990 it paid about $500 million for it. The other half of that joint venture was held by Investor AB, Sweden's largest holding company. Thus, in 1990 Saab Automobile AB became a privately owned company, completely independent of SaabScania AB, although it would continue to use the SaabScania badge. With much support from GM by way of strategy, leadership, and financial investment—including GM's tremendous purchasing power—Saab Automobile faced the end of the century with great hope of making a comeback in the European luxury automobile market.

STRATEGY

Early on, as distinct companies, SAAB and Scania both stood out as innovators, introducing original and advanced designs and technologies. For example, Scania's 1903 automobiles were remarkably modern, featuring track-rod steering systems and central chassis lubrication (the rear seat of Scania's Model A could even be converted into a loading platform). In 1947, many years before the technology came in style, SAAB's first automobiles featured front-wheel drive and a transverse mounted engine. From the start the SAAB 92 was designed for easy conversion into a "sleeper," comfortably accommodating two adults. (About 10 years later the SAAB 95 would also be distinguished by this unusual design feature.) In 1951 Scania-Vabis introduced a turbo-charged diesel engine. After the companies merged in 1969, Saab-Scania continued developing innovative technologies, including headlight washer/wipers in 1970; impact-absorbing, self-repairing bumpers and electrically heated seats in 1971; side-impact door beams in 1972; and a variable-boost turbocharger, the first integrated into a mass-produced family-type car, in 1976. In the 1980s Saab-Scania's President Georg Karsund focused marketing and sales efforts on Europe, Australia, and Japan, while continuing to emphasize Saab's ability to develop advanced technology, believing this enduring trait would give its automobiles a real advantage in the increasingly competitive international markets. The Saab automobile has often been called the "car for iconoclasts" and Saab owners are famous for their love of the car's quirkiness, down to its unusual on-the-floor-and-in-between-the-seats ignition placement.

Saab Automobile has capitalized on its car's image with a series of unusual marketing strategies: in the spring of 1997, the year of the carmaker's fiftieth anniversary, Saab offered a flight for two to Europe for any 1997 Saab purchased through Saab's European Delivery program. (The offer was again in effect in 1998.) In July 1997, Saab hosted a long weekend trip to Sweden for 200 of its U.S. customers. Saab's fiftieth anniversary year was also a perfect time for the company to introduce a model from its new 9-series, the 9-5 (pronounced "nine five" not "ninety five"), a luxury sedan intended to replace the 9000 hatchback model. Unveiled in Europe in September 1997, the Saab 9-5 would not be introduced to the United States until early 1998.

Finally, Saab turned its attention to its ailing dealership network. In 1997 all but 20 percent of Saab's 285 U.S. dealerships were paired with other nameplates. Saab wanted to increase the stand-alone figure to 80 percent by the end of the decade since stand-alone dealerships sold more cars than those selling Saab alongside other brands. It planned to do so by cutting the number of dealerships by 15 percent and giving each remaining dealer a larger geographic area, thereby easing competition between retailers, cutting distribution costs, and increasing profits. For example, in early 1998 Saab acquired and turned over to a single dealer the three Saab franchises that served Orange County and Long Beach in California. Moreover, Saab planned to utilize a more personal touch with customers. The company was considering adopting Saturn's "no-haggle" pricing, establishing "Vision Teams" that would focus on each key encounter between a prospective client and a Saab employee, and implementing a test drive program of the kind used by Lexus in which low-pressure representatives would meet prospective clients at a location of their choosing to introduce the client to the car.

INFLUENCES

As the luxury car market grew during the 1980s, Saab-Scania's automobile division became crippled by diminishing sales in the United States, the largest market for its cars. At the end of the decade, when General Motors acquired 50 percent of Saab Automobile AB, it brought hope for resuscitation to the ailing car company. There was much to recover from: the early 1990s saw the Swedish kronor falling against the German mark, forcing Saab Automobile to pay more for its German parts, while the U.S. dollar fell against the Swedish kronor. In 1987 a dollar was worth more than nine Swedish kronor. By 1992, the dollar bought just six kronor, which would translate directly into a 50 percent U.S. sticker-price increase on Saab automobiles in five years. In 1989, to make a profit, Saab Automobile would have had to produce 200,000 cars a year, which it did not do. In 1990, Saab recorded a loss of $848 million, a staggering $9,200 lost on each car sold. Moreover, Saab's 20-year-old 900 series seemed narrow and outdated and, in 1991, it took 98 hours to build just one of them.

General Motors assumed responsibility for Saab Automobile's management immediately and began addressing these concerns by trimming costs and investing much money and energy into its new company. From 1990 to 1996 Saab closed two factories, sold two others, and cut its workforce in half to 8,000. By 1991 Saab's pretax losses were reduced to $370 million, down from $770 million in 1990, and Saab was now in the position of being able to make a profit producing only 100,000 cars a year, half of what it needed just prior to General Motors' purchase. Still, the company continued to lose money. In July of 1993, Saab introduced a new, updated 900 model, something it would not have been able to do without GM backing. While retaining elements of its distinctive exterior, the new 900 shared its mechanical insides with the Opel Calibra, sold by GM's German subsidiary, which allowed Saab to keep its costs down and, in 1994, to record its first full-year profit since 1988. By 1995, it took just 35 hours to produce a Saab automobile. Finally, Saab began a serious attempt to market its cars against those of large, more wealthy luxury cars, like Acura, BMW, Infiniti, and Volvo.

CURRENT TRENDS

Although Saab Automobile reported profits in both 1994 (just $80 million) and 1995 (a mere $5 million), in 1996, it began slipping back into the red, reporting a $53 million loss for the first half of the year. By year's end, Saab would see a loss of $154 million, erasing the only profits GM earned from Saab since acquiring half of it in 1990. Saab executives now reported that sales would have to rise to 150,000 vehicles annually to cover new model investments. In early June 1996, Joel Manby, a Midwest regional manager for General Motor's Saturn division, was named president and chief executive officer of Saab Automobile's U.S. division, Saab Cars USA, Inc. GM's Saturn subsidiary had become known for its personal and pampering service, which generated a cult-like enthusiasm among its customers, and Manby was one of the key marketing strategists behind this formula. General Motors then appointed another former Saturn executive, John Orth, as vice president of Sales and Marketing for Saab's U.S. division. A week after the Manby appointment, General Motors announced that Robert Hendry, a GM vice president and one of the most powerful executives in GM's North American automotive unit, would replace Keith Butler-Wheelhouse as Saab Automobile's chief executive officer. Before the end of June, Investor AB made two concessions to GM: first, it agreed to join GM in investing $262 million, for a joint total of $524 million, into Saab Automobile; second, it gave GM the option to buy the remaining shares of Saab by the year 2000.

With its new Saturn-influenced U.S. management, Saab continued to concentrate on advertising and marketing, attempting to clearly define itself for American consumers as the exhilarating and fun car for individualists—or what Manby called "a synthesis of performance and safety." Saab's first real national U.S. advertising campaign, called "Find Your Own Road," was begun in 1995 and featured an animated series by artist Jean Phillippe Delhomme. Saab more than doubled its advertising budget that year, increasing it to about $32 million and then further increasing it to $62 million in 1996. This outlay would still seem puny compared with the lavish expenditures of its luxury import competitors, which routinely top $100 million. The initial results of the campaign seemed impressive, though, with Saab gaining 30 percent in brand awareness. Still, in 1996 Saab lost $154 million and, for the first half of 1997, Saab reported a loss of $74.5 million. Manby attributed the loss to unfavorable exchange rates and increased investment expenditures and claimed, "If you subtracted the investment money, we'd be at break-even and not far from profitability." Manby also stated that he regarded 1997 and 1998 as investment years during which time the company could anticipate further loss.

PRODUCTS

Saab introduced the first in its new 9-series, the 9-5, in 1997 at the IAA Frankfurt Motor Show in Germany. The 9-5 is a luxury/sports sedan featuring a new safety design: it is fitted with an active head restraint that unfolds in a crash to minimize whiplash, similar to a catcher's mitt cushioning the impact of a baseball. GM kept production costs of the new model down by using the Opel Vectra platform, the same one its Saturn division would use to launch its 1999 Innovate sedan. In early 1998 Saab unveiled its 9-3 design in the United States. The 9-3 line, which includes a coupe, a five-door, and a convertible design, went on sale in the United States on May 1, 1998. In the long-run, Saab hopes to accelerate its product cycle, bringing out new models every 6 years, instead of every 15 to 20 years, which has been its pattern in the past.

GLOBAL PRESENCE

In 1996 worldwide retail sales for passenger cars totaled 36 million. Saab Automobile's worldwide sales reached just 95,406 cars. The company's biggest market by far is the United States, which accounted for about 29 percent of its total sales in 1996. The United Kingdom and Sweden typically vie for second and third place, each providing about 18 percent of Saab's annual sales. Although in the 1980s Saab focused much effort on trying to capture foreign markets like Japan and Australia, other luxury car makers were becoming much more competitive, securing greater shares of the U.S. luxury import car market. The Japanese automakers Toyota, Honda, and Nissan have won much of the U.S. luxury import market with their Lexus, Acura, and Infiniti models. By the late 1990s Volvo was hurrying to broaden its model range and BMW and Mercedes-Benz were developing aggressive new-product plans. Meantime, the Japanese car-makers were becoming much more cost competitive. In 1997 Saab automobile sales accounted for only 0.2 percent of the U.S. market. All of this suggests that Saab Automobile's chances for successfully winning the share of the U.S. market necessary for its survival are dim.

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For an annual report:

write: Saab Cars USA, Inc., Corporate Communications, 4405-A Saab Dr., PO Box 9000, Norcross, GA 30091

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. Saab Automobile AB's primary SICs are:

3711 Motor Vehicles and Car Bodies

3714 Motor Vehicle Parts and Accessories