Saab And Youngman To Spin Undisclosed Amount Of Cash Into 3 Cars

[Editor’s note: the initial draft of this piece misunderstood the structure of the deal. Youngman and PangDa have paid over $350m for a 51% of Swedish Automobile, Saab’s parent company (which has a market cap of $68m). Funding for the New Product Joint Venture (50% owned by Youngman, 50% owned by Swedish Automobile) has not been disclosed. See comments for more background.]

Just when the lights seem to be going out all around Saab, with employees calling for bankruptcy, suppliers in revolt and even the Swedish government pretending like nothing was happening, Saab always seems to find away to prolong the agony. Selling, then leasing back the factory was one step that’s been approved by the EIB. Getting the suppliers to take ten percent down on deliveries? Well, it turns out that management has some time to sort that one out, as the factory’s annual vacation starts in a week, and Saab is letting its employees go a week early rather than starting up and then shutting down the line. And the company is certainly hoping that it won’t have to restart the line simply to restore confidence, as it’s announcing the “final agreement” with China’s Youngman Auto and the dealer group PangDa for €245m (about $365m) which it hopes will clear up the perception that Saab is a sneeze away from death. Needless to say, this agreement fits squarely into the “stringing along” category rather than the “game changing” category…

For one thing, this is not a new deal, but simply a more detailed “final” version of the agreement it reached in principle with Youngman and PangDa nearly a month ago. For another, it still needs Chinese and Swedish government (not to mention GM) approval… the former of which is hardly likely, given that Saab will compete fairly directly with well-connected BAIC ( motto: “From Saab, Better Than Saab”), and the government is looking to consolidate its auto industry, rather than duplicate efforts. And Sweden’s government? According to accounts in the Swedish press, the auto industry is now wondering aloud if Sweden cares whether it stays or goes. Saab’s plight seems to be the curiously unspoken subtext, although long-term problems like the “lack of Swedish engineers” are openly acknowledged. In any case, if the industry that has “lost” Saab and Volvo first to Americans and now to the Chinese has to be asking if the government cares about it, the answer isn’t going to be pleasant. Not knowing enough about Swedish politics to have an opinion on the matter (sorry car fans…), I can’t help but wonder if the Swedish government’s silence isn’t simply its most tactful option.

After all, like most of Saab’s eleventh-hour deals, the details of the most recent “rescue” are hardly encouraging. Like Sergio Marchionne angling for a stake in crippled Chrysler, Saab’s Victor Muller is playing with his sunk investments, Saab’s “know-how,” rather than actual cash. As a result, the Saab-Youngman joint venture seems to be a full-sized enterprise with a half-sized undisclosed budget. Consider the following, from Saab’s presser:

The NPJV will be 50 percent owned by Saab Automobile and 50 percent by Youngman Passenger Car, and forms the foundation for an expansion of the Saab product portfolio with three models which until now did not form part of Saab Automobile’s current and future product portfolio. As such the NPJV will focus on developing three completely new Saab vehicles: the Saab ’9-1′, Saab ’9-6′ and Saab ’9-7′.

Within the development process of these three new vehicle lines, Saab Automobile will be responsible for controlling and managing the design, the development and testing process to the start of production and providing other necessary technical and quality control support. For this, Saab Automobile will source existing capabilities and expertise from its state-of-the-art technical development department in Trollhättan. Youngman Passenger Car will be responsible for providing the necessary financial investments in the joint venture.

Now, to a “career blogger” like myself, $350 million and change is a lot of money. But best-case scenario, we’re talking about at least two new platforms here, possibly three. Industry rule of thumb states that a billion dollars must be spent on an all-new competitive platform. Building even one credible car that performs to Saab’s oft-touted “premium” standards for $350m would be quite the accomplishment, but it’s clearly even worse than that. After all, that $350m+ will have to be augmented by an actual development budget. And, according to Saab

The Saab ’9-6X’ and Saab ’9-7′ will be key to enhancing the prestige of the Saab brand to an even larger group of customers in China and the US, while the entry level Saab ’9-1′ will appeal to urban motorists around the globe.”

Thus, the 9-1 becomes a MINI-fighter, the 9-7 becomes some kind of large “prestigious” sedan, while the 9-6X is presumably a three-row SUV. The 9-7 and 9-6 clearly sound like modified platform-mates, while the 9-1 will require another new chassis… which means one full-size premium chassis (modifiable for passable CUV/SUV duty) and a premium-ish small car for an undisclosed sum. Designed, developed, tested and overseen by Saab’s not-cheap Swedish engineers (who are, in their defense, both well-vacationed and rare).

If this formula succeeds, it will prove that A) China is the land of industrial miracles, and B) Sweden is the land of auto marketing miracles. After all, Volvo has been trying very hard to monetize one large platform ( P2, aka Ford D3) as “prestigious” sedans and crossovers for a while now, with little-to-moderate success (hampered, it must be added, by even-less usccessful smaller cars). And what has Saab got that Volvo didn’t, besides the raw motivation born of gnawing terror that comes with having a Chinese car dealer as your backer instead of a giant global automaker? Before you answer that, consider that Volvo spent $387m simply to update and retool its Ghent plant for production of the current S40… so the answer sure isn’t “money” (unless Youngman is willing to spend over ten times what it’s already dropped on Saab equity). Meanwhile, a “global” small car sounds marvy, especially in light of Muller’s obvious obsession with the ur-92, but the tiny budget, Chinese production and “global” description seem at odds with the “prestige” part of the story. Which basically sums up the entire problem with the Saab predicament.

What happens next? Who knows. Though the Chinese were willing to spend well over the market rate for Swedish Automobile equity, Saab has a money-losing short-term problem in the form of a shut-down factory and laughable (if they weren’t so sad) sales. This investment might help on that front, but it leaves the brand’s future very much in question. Meanwhile, the Swedish government clearly no longer sees its auto industry as a unique symbol of national pride, and won’t shell out krone one to save it. And the EIB has probably dug up new dirt on Vladimir Antonov, Saab’s somewhat dingy white knight in waiting, only approving the lease-back deal without Antonov’s involvement, and won’t give money to failing firms. Plus, Beijing has reasons to veto the deal. Which means the Chinese could get everything they want from Saab with fewer headaches when their Swedish paramour swoons, seemingly inevitably, into bankruptcy. Unless Victor Muller is able to pull just one more “rescue” out of his hat… otherwise, Saab seems doomed to become a low-cost Chinese brand hocking cars with tiny development budgets [see comments below].