Saab- the new road to success
Last year has evidently been characterized by a lot of turmoil around Saab and its future as GM, its owner and hit hard from the financial crisis, decided to drop/ sell the brand after the results had not been satisfactory. This generated rumors in public media of potential bankruptcy, lay-offs, multiple takeover situations and an indirect financial collapse of the entire Swedish car industry suffering from ambiguous proclamations of governmental support. In the wake of all this, Saab’s CEO, Jan-Åke Jonsson visited SSE during ”Handelsdagarna” the 11-12th of February to give his view on the situation and the future of the brand.
After a general introduction describing where he finds strength and inspiration to be a leader for SAAB (remarkably in a toiletry book) he was quick to declare that the Saab company was never really close to going bankrupt, despite medias constant abetted headlines. He strengthened this statement by indicating that the profitability cycle for a car is roughly 7-8 years, and before an initial investment period of up to 4 years is required where R&D, testing and sales/marketing efforts are planned and carried out. Luckily for SAAB, they had strategically under GM’s ownership already made these initial investments (with GM’s capital) for a new line of cars, expected to start yielding profits in 2010 and, thus Saab were not forced to make additional investments and increase costs in a short-term perspective in order to survive. Had it been that the company had entered an initial stage of development, the situation could have been much worse since it would have required large investments to generate income, and then the debated potential bankruptcy would have been more likely. Jan-Åke also likes to denote that the margins within the car industry is so low, seemingly 3-4% in the best case, that back-up capital always exist in order to not jeopardize a company’s currently weak positioning in the marketplace. Despite this, he admits that the situation was indeed serious, especially under lacking knowledge of future ownership conditions, and that the necessary cut-backs in costs carried out with effect (e.g. through layoffs) was crucial for the company to remain attractive for new potential investors and to not jeopardize future businesses.
So why has SAAB not been profitable over the last decade? Well there are many reasons, but one important is that the company has until today’s date operated with an intended life-cycle of 12-13 years (five years more than industry average) for its cars, and with the auto-industry constantly evolving Saab’s offerings in terms of cars have become nearly antique in comparison with competitors at the end of the life-cycles. Further this has turned their business model obsolete, as their focus on fewer sales and premium prices has not matched the realized product portfolio and industry standards in general and hence, the value-based pricing model has not attracted customers further injected with the second-hand value for SAAB- cars dropping.
GM deciding to drop Saab on its category of cars has not helped either causing doubtful ownership conditions, but despite this Jan-Åke is careful in his critique of GM albeit willing to share some insight into what the negative aspects of the GM partnership have been and what positive sides that have existed.
In the negative column, he first point out standardization as a problem. Under GM all components are bought in relevance to the consortiums economies of scale focus which limits the amount of used individual components in the cars and sometimes leaves quality lacking. Jan-Åke exemplifies this by stating that “when a Saturn car and SAAB has to share the same gearbox, despite the $15000 dollars difference in sales price, clearly it’s hard to build the car one would like”. Further it can be dangerous, recall Toyota lately recalling 6 million Prius cars after its standardized break and acceleration pedals experienced technical problems in the model, creating tremendous economic loss and dilution of the brand.
This also brings up another issue, namely SAAB’s presence as a small entity in full compliance to the directions of GM. This has meant having to fight for all resources with other brands through strict allocation justification practices. Last but not least, in relation to GM’s power structure, Saab has had to experience long-lead times under the mother brands corporate hierarchy decision-making policies. Here multiple areas of responsibility exists that all needed an individual signature by various people in authority spread out all over the world, when making changes to any single operational practices. This made practices seem “stuck” at times.
On a positive note, Jan- Åke denotes that the GM partnership has contained technical supremacy qualities very beneficial to any car manufacturer, created by the overall large knowledge base of GM and its experience from years of being the world’s largest auto producer. Another strength has been GM’s capital power, in excess of the car development investments already stated, GM has also invested large sums in SAABs production facilities which the brand still owns the rights to operate (even after a potential sale of the brand), and initiated well-received educational programs for employees. Lastly, the advantages given by GM’s economies of scale has decreased SAAB’s operating costs as production lines have been standardized, and this will continue to benefit SAAB in the future.
In a comment about the role of the Swedish government and its straddling support for SAAB in the settlement of its future, Jan-Åke asserts that it became clear to him that as a company leader it needs to be understood that politicians have different priorities given their relative closeness to an upcoming election cycle. This has affected SAAB which would have benefited from shorter decision-making times increased responsiveness and/or investigation to the precare situation. Had this been done it would have facilitated offering more support to employees and given a faster response to investors wondering about securities.
So what does the future hold?
The SAAB brand can be seen as built on three core Swedish heritage values which guide the brands organizational practices as well as its car production:
- Scandinavian design- (clean lines, bright interior)
- Aerospace engineering- (aerodynamic excellence and velocity)
- Technical innovativeness- (e.g. turbo engine)
These can be seen as profound landmarks of the brand and its users but what will it be enough to make Saab competitive even in the future?
The most likely new owner of Saab, Spyker Cars actually shares the same heritage as SAAB coming from an aerospace culture. In an acquisition SAAB would entail about 98% of the mergers combined turnover and thus be prioritized in terms of focus and given autonomy in decision-making and construction of individual components which increases the possibility in material choices, innovativeness and quality. The owner structure of Spyker Cars has been questioned by GM, fearing legitimacy issues towards larger individual stakeholders, which potentially could offset a takeover. This is not seen by Saab however as major threat and according to Jan-Åke SAAB already have a strategy set in accordance with Spyker, aiming to compete in the upper mid-luxury segment with Audi and BMW, currently priced 5-6 percent above SAAB. To achieve its targets, three core focus points has been identified as key success areas:
Efficiency – Safe and efficient domestic production will take place in Trollhättan, Sweden, which currently is one of Europe’s most modern car parks with an maximum output capacity of 190,000 cars, of which SAAB aims for an output of 115000-125000. Saab hence has a marginal to grow in capacity efficiently, which is an important aspect of the company’s overall growth strategy.
Brand – Jan-Åke states that: “this is becoming more and more important as the actual car quality between the worst and best is becoming narrower”. Joyously, Saab has noticed that the one thing that has constantly remained strong in the turmoil is the interest for the brand. Saab has a close relationship with its customers and they are in turn very loyal to Saab. This, however, needs to be further strengthened to reach the level of its main competitors in where a higher price can be charged.
Last but not least, Saab will need to divest its old life-cycle policy of its cars, and invest in programs cherishing technological innovativeness. Here current focus is, as always, fuel efficiency, leading edge design on its models and novel technique, all very much needed to successfully compete in the car industry.
In the end, Jan-Åke finishes of by giving his view on leadership in precare situations, and reveals what he demanded from the people in charge of Saab during the rough time period. He reveals that a strong leadership has been necessary. This promotes not hiding to the employees and always answering questions and maintaining an open dialogue even if the answer to a critical issue is “I don’t know” at the moment. Jan-Åke ends with saying: “To remain visible and show patience even when the worst news hits you is key to regaining confidence and character to rebuild an organization”.
Time can only tell what the future will hold for Saab, but it is clear that the company needs vast organizational changes in order to progress. The likely upswing generated from a new ownership structure will inject new blood into Saabs lines and may offset the previous negative cycles of constant losses through a new profitable business model. Backed up by a strong, positive and enthusiastic management working on defining clear-cut goals set for the future of the brand it stills remains a living legend on the roads, with a legacy to protect and thus, an era of Swedish car history remains to be written.