Saab-Hawtai Deal Didn't Need Government Interference To Fail

When we heard that Saab’s deal with the Chinese automaker Hawtai had fallen through, our initial reaction was a complete lack of surprise. My take was that Saab’s attempts to seek Chinese White Knight from the ranks of that country’s smaller automakers was doomed to fail, as the Chinese government has made it clear that it would like to see its auto industry consolidate. As with all things Chinese, however, I should have consulted more closely with Bertel before writing. Our man in China was quick to point out that the Beijing scuttlebut blamed Saab’s lack of intellectual property, rather than government consolidation rules, was to blame for the collapse of the Saab-Hawtai deal. And sure enough, Automotive News [sub] reports today that

Sweden’s Saab Automobile failed to secure investment from Hawtai Motor Group because of “commercial and economic realities,” not a lack of government approval

And, it turns out that’s the nice way of putting it…

AN [sub]’s reporting on the evolving situation is more than a little confusing, with Hawtai both blaming “commercial realities” for the failure while continuing to insist that

Saab needs help and we strongly believe we are the best partner in this regard

Conflicted feelings much? For help understanding this complex situation, we turn to a Swedish-language report from svd.se, which explains that

After Hawtais delegation visited Saab stationary factory in Trollhättan at the end of last week said they have been aghast at how bad the situation was. They then demanded tough renegotiations with Victor Muller. If not Hawtai and Saab can be agreed before the deadline for the contract expires tomorrow may be over the deal.

According to SvD Näringsliv sources, the agreement between the Dutch Spyker, which owns Saab, and Hawtai only a framework agreement. The agreement that was presented with a bang 3 May is full of exits Hawtai can use if the parties fail to agree.

In short, Saab’s agreement with Hawtai was a preliminary agreement, and having seen the disaster at Trollhättan, Hawtai execs were running away screaming. Saab-Spyker essentially confirmed this reality when CEO Victor Muller had to abandon the launch of the Saab 9-4X in Washington DC, leaving only the following statement with AN [sub]

The transaction with Hawtai was subject to definitive transaction documentation and certain conditions, which included the consent of different stakeholders

But perhaps the more revealing quotes came from Muller while he was dining with AN [sub]’s Product Editor Rick Kranz at the 9-4X launch. On the topic of his Chinese negotiations, Muller revealed

I was actually negotiating with three at the same time in the same hotel. I could write a movie… I was working 24 hours a day, working three rooms with three different parties. Honestly, making the best deal here, walking to the next room, saying, “This is what I can do.” And I was in a hurry, too, because I had to get it done. I slept 5 hours in 70 hours.

And perhaps a few loose straws were left dangling after those manic negotiations. So, it’s really not all that surprising that Hawtai was at least a little bit surprised by what they found in Trollhättan. But what were those loose ends? That’s where things get interesting, as the WaPo only notes that

the Chinese company was unable to obtain necessary approvals, including from various shareholders

For more on those details, let’s go back to the translated svd.se story:SvD has previously written how BAIC believe they have the right of the Saab 9-3, Saab announced that they intend to produce in China with Hawtai. But cooperation has gone beyond that. Until mid-April negotiated BAIC still to take care of Saab dealership in China.

And still April 30 Negotiated Great Wall with Saab. Great Wall is a large and successful private Chinese automakers. Several sources in Sweden and China Great Wall describes as a “perfect partner” for Saab.

But the hearing fell on the Great Wall had at least one more week to do due diligence (a review of the company) and have a board meeting, which Muller felt that the bleeding Saab did not have time for. Three days later, on May 3, presented Hawtai affair. Great Wall reacted very negatively. It was not alone. Even private vehicles Youngman Automobile Group in the city of Hangzhou reacted sharply. Although they have namely negotiated with Saab.

– We were extremely disappointed and upset, “said one of Young’s management team who will speak on the promise of anonymity and continues:

– We have a written contract with Spyker that they could not negotiate with any other Chinese company before we were done. Still, one day before Hawtai agreement we had with them. We took it for granted that they would follow the rules.

Spyker had had negotiations with at least three other Chinese companies in a weekend: Great Wall, Hawtai and another company. Youngman says they began negotiations for Saab in January. They also signed a letter of intent on cooperation.

Youngman Automobile is the only company that has already submitted an application for Saab and investment permit to the National Reform and Development Commission, NDRC. It is mighty Chinese authority that must approve all overseas Chinese investment. Young’s CEO Rachel Pang says she does not want to talk to journalists but adds:

– See for yourself how the rules are formulated, “said Youngman’s CEO.

Under current policy in China can have only one application at a time inside a foreign company in the automotive sector, reports the respected Chinese business magazine 21CBH.

– Hawtai can possibly do it by having a contract for Saab, while Youngman just have a letter of intent, which carry less weight legally, “said a familiar business lawyer.

But even BAIC’s guidance indicates that leaden NDRC is unlikely to approve the deal as long as it is unclear who has the right to Saab’s technology, according to an inside source. BAIC is an influential state-owned enterprise and the rule is precisely to prevent the Chinese firms from competing for the same foreign brand.

Note to Victor Muller: China’s a complicated place, and it probably helps to get some sleep while you’re simultaneously negotiating with three automakers. Meanwhile, if Muller has made enemies in China to the extent that svd.se believes, his flirtation with pro-China automotive evangelism may well be short-lived. Playing rivals off each other is not how you go about accumulating guangxi, or the connections that make everything in China happen. And if Saab has burnt its Chinese bridges (and if Great Wall is denying any further contact, you can safely assume that’s the case), you can just about stick a fork in the plucky Swedes. This was probably Saab’s last chance, and it may well have been gambled away.