By on July 4, 2011

[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].

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17 Comments on “Saab And Youngman To Spin Undisclosed Amount Of Cash Into 3 Cars...”

  • avatar

    Politics aside, I have to give credit to team auto (as they called themselves) in the US for not getting us into a mess like this with GM and Chrysler. To their credit they seemed to give both companies a chance for success. They also seemed to know that some brands must be ditched and they were fully prepared to let Chrysler go if the Fiat deal did not come through.

    What we are seeing with Saab is what would could have happened.

    I am not a big supporter of the bail outs but…it could have been worse.

  • avatar

    Edward, I think your assessment is sadly correct. I’ve only spoken to one Swede, who said they’ve moved on. With the loss of confidence, what little volume was left has gone too.

  • avatar

    *Full Disclosure* I am a certified SAAB NUT***

    O what to say about poor SAAB… I love the brand and have owned a Saab since I was fifteen year old. I used to take major offense to the TTAC way of reporting on Saab ( I still does kind of bother me) but I understand that reality is reality. I Love my current Saabs and and would never think of owning anything else. These past few Months (years) I have worried about Saab. I feel like Saabs fit me in some way. I even have (had) the goal to one day work for Saab in some compacity in the future.

    Even though I do not understand why a euro brand like BMW or VW doesnt gobble Saab up ( there is STILL potential in the brand). I feel there is somthing left in the Saab brand with enough investment. Saab currently lacks investment. Even as a hardcore supporter I have my doughts about the little firm making it, without strong long term investment. It just doesn’t happen in the automotive world. Saab NEEDS to get back to its roots ( out of the luxury segment) and build a proper hatch in the 25-35K range. I think the Mini business plan would suite Saab well.

    Fingers crossed and the best wishes to all the employees in Trollhattan!

    • 0 avatar

      When you consider VW’s current portfolio of brands, neither the SAAB brand nor the manufacturing facilities really add much to what they already have. Brand portfolio-wise, BMW could fit it in, but then BMW’s RWD platforms don’t really fit in with SAAB’s FWD heritage.

      Fiat would have been the best candidate IMHO but I suspect Marchionne has his hands full now with Chrysler.

      • 0 avatar

        but then BMW’s RWD platforms don’t really fit in with SAAB’s FWD heritage.

        True, but they do have those FWD models on the way which, in my opinion, would be better off wearing SAAB badges.

      • 0 avatar

        I agree that VW might be the best fit for little Saab. I think that BMW on the other hand has alot to offer and to gain from Saab. With BMW’s getting even more exspensive with each generation, that there would be enough room for Saab between mini and BMW.

        Plus it makes more sense than front wheel drive BMW’s. I also really like what BMW has done for Mini, Rolls.

        Personally I would be happy if Saab is able to pull off the current deal. They really need some committed long term investment to get the ball moving and to give consumers confidence in the brand. once again.

    • 0 avatar

      I too like Chuck am a certifiabke SAAB nut. I have 2 in the stable with my W124. Someone on here once said they would have been a good fit with Subaru. I’d buy a boxer turbo SAAB if it maintained Swedish ergonomics and cockpit interior styling of the past.

  • avatar

    I now many Saab fans who are ecstatic about this new agreement between Youngman and Saab. They see the glass as half full, I guess. They don’t seem to realize how difficult it will be to gain the approval of the Chinese government. I just don’t see this happening. The deal is Saab’s last hope but I think it’s a pipedream.

  • avatar

    Looks like a rerun of the loaves and fishes scam

  • avatar

    Only TTAC can take good news and put a negative spin on it.

    • 0 avatar

      Well, in that case, enlighten us and tell how any manufacturer, especially Saab, can build and develop at least two platforms for $350m in this day and age. Unless you buy them off another manufacturer with limited Saab input, I have trouble seeing it happen.

      • 0 avatar

        Ok, well the way I see it there are 2 deals here. The one thats been on the cards for months and the new one relating to the creation of a new company that will be funded by the chinease and will produce these cars. I can’t see the conection between $350m and producing 3 new cars.

      • 0 avatar

        Who said anything about “buying” from another manufacturer? The only way you could do 3 platforms for $350M is to do it the old Chinese way. Copy someone else’s platform!!

  • avatar

    wasn’t saab talking to BMW about using the Mini platform?

  • avatar

    176770 has it correct – there are two separate deals involved here and covered in yesterday’s press release.

    In fairness to Edward, I had to read the releases several times myself and event went to the trouble of writing this summary of the deals and the way they’ve evolved.

    But in fairness to Saab (disclosure: I work for Saab in Trollhattan) it must be pointed out that this TTAC article is factually incorrect in stating that the equity funds being put up by Pang Da and Youngman is the extent of funding available for this new model development plan.

    Steven Wade –

    • 0 avatar

      OK, I can see how I got this wrong. It’s not hard to get lost in the thicket of joint ventures. I’ve mistaken the $350m+ of total equity investment in SWAN for the NPJV’s development budget. If I’ve got it right, it’s now up to Youngman to wholly fund development… so in order to be completely accurate, the headline here should be “Youngman To Spin Undisclosed Amount Of Cash Into Three Cars With Technical Assistance From Saab.”

      This makes more sense to me… Youngman can develop whatever they like (as long as PangDa thinks it will sell), which opens the door to much lower development costs. Saab (meaning Trollhattan) has to go along since it’s only got a minority stake in the parent company (SWAN), which itself has only a 50% say in the NPJV. At the end of the day, SWAN is a Chinese-controlled firm with less than a billion dollars in equity value (incidentally, if PangDa and Youngman spent $350m+ for a 51% stake, why is Saab’s market capitalization only $68m?)… in order to live up to Saab’s quality and performance standard, Youngman is going to have to spend many multiples of SWAN’s equity value on the NPJV alone. Or it’s going to crank out cheap brand-eroding junk (hello Lotus). Only one of these options makes any business sense at all…

      I’ll make some modifications to the piece to reflect the more complex reality and to clear up the factual issues, but the underlying conundrum is the same: developing new Saabs that don’t fall below GM’s quality level with a Chinese budget, no ability to to hold a tough line on quality (without a majority stake in anything, Trollhattan’s role is all “advise” and no “consent,” to use a political metaphor), and no sense of how much cash will actually go into development. And this is supposed to restore the faith?

      • 0 avatar

        Thanks for the update to the post, Edward.

        I’m not going to try and convince you about the merits of the deal or go into the minutiae of it. Neither of us knows enough about the details to make that a worthwhile exercise here and now. Just remember that each time you write us off as dead, we seem to have an annoying habit of being not dead.

        And if you’ll permit me a (very) little bit of dry humour, the fact that I’ve been able to point out an error on TTAC and get a correction (after my recent BS experience) has restored a little of my faith, so perhaps there is indeed some hope for us all.

        Take care.


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