The Attempted Fiat Acquistion of Saab-Scania’s Car Division – 1989

In October of 1989 The Swedish based Saab-Scania group were in discussions with the Italian based, Fiat SpA group about the possibility of Fiat acquiring 51% of Saab for a figure of $780 million. This figure was $180 more than GM’s $600 million 50% acquisition which they subsequently offered Saab on December 15th, 1989 when the press release hit the wire.

Saab-Scania as you may know, previously worked with Fiat’s lancia group for a number of years to develop and produce both the highly acclaimed Saab 9000 (1985-1998) as well as the Saab-Lancia 600, a vehicle that only reached the Swedish Market.

GM on the other hand, had apparently sold parts to both the SAAB aircraft division as well as the Saab automotive division of Saab-Scania for years, but I think that the only relationship they had with Saab-Scania prior to the acquisition.

What strikes me looking back on the apparently imminent deal by Fiat to acquire Saab-Scania’s automotive division from the Wallenberg’s investor AB group, was how GM ended up as the victor by offering less money and having no significant previous relationships with the company unlike Fiat did on two vehicle projects, etc.

I have decided to start digging through the archives with a few colleagues who frequently write for Nines Magazine, in order to see how the Fiat SpA acquisition dialog unfolded right until the December 15th announcement in Stockholm. We must remember that those who were watching the news at that time, as you will see below, it felt as if out of nowhere, GM offered to buy Saab-Scania’s auto division when most people at that point, thought that the Fiat deal was inevitable.

So here’s the question: As you read the newspaper articles below leading up to the announcement, there was no material between the dates of December December 5th & December 14th, 1989 that has shown up yet in my searches, so what do you think actually took place between Saab-Scania, Fiat SpA and then General Motors between those dates?

If you have the necessary information, please provide it in comments here, as the the greater Saab community has been wondering exactly what happened for a number of years now, so let’s get this resolved once and for all as to why the Fiat conversations broke up and Saab accepted an offer from GM.

Here are the news articles below leading up and covering both the Fiat as well as GM acquisition announcements.

The Saab-Scania & Fiat News as it unfolded in the late fall of 1989

Saab-Fiat Venture Seen
REUTERS

Published: November 11, 1989

LEAD: A venture between Saab-Scania of Sweden and Fiat of Italy could be agreed upon before the end of the year, Sweden’s Industry Minister was quoted as saying today.

A venture between Saab-Scania of Sweden and Fiat of Italy could be agreed upon before the end of the year, Sweden’s Industry Minister was quoted as saying today.

The two companies were still assessing what sort of car deal might be possible, but they ‘’should be able to come up with something by the end of the year,” Ivar Nordberg told Svenska D agbladet, a daily newspaper.

Last month, Saab’s attempts to win a deal for its car division with the Ford Motor Company broke down.

http://query.nytimes.com/gst/fullpage.html?res=950DE5DC1F31F932A25752C1A96F948260
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Saab negotiating to sell car unit to Fiat

Star Tribune. Minneapolis, Minn.: Nov 11, 1989. pg. 02.M

Abstract (Summary)
Senior Fiat officials confirmed, however, that Fiat is seriously interested in acquiring the Saab car division.

Fiat has also confirmed that it will join the bidding for Emprasa Nacional de Autocamiones SA (Enasa), the Spanish truckmaker. This company’s recently announcement that it was for sale resulted in bids from carmakers in West Germany, Holland and Sweden. Finally, Fiat has also signed an agreement to put the Alfa-Romeos in showrooms of Chrysler Corp. dealers across the United States by the early 1990s.

Fiat has considerable information about Saab through technical and production agreements. Among other deals, the Saab 9000 shares a chassis with Fiat’s top-of-the-line Croma, Alfa-Romeo 164 and Lancia Thema.

Star Tribune. Minneapolis, Minn.: Nov 11, 1989. pg. 02.M
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Copyright Dow Jones & Company Inc Nov 14, 1989

STOCKHOLM — Spurned by Ford Motor Co., struggling Swedish auto maker Saab-Scania AB appears to be moving toward an alliance with Italy’s Fiat S.p.A.
The two European auto concerns have a long record of collaboration. And when Ford jilted Saab-Scania for Jaguar PLC last month, the Italian auto giant was widely named as the most probable new suitor. Initially, Fiat played down such speculation, hinting that it wasn’t interested in acquiring Saab-Scania or the faltering Saab car division.

A Fiat spokesman confirmed that talks with Saab-Scania are being held, but he declined to discuss their content. But one person familiar with the talks said Saab-Scania and Fiat never completely severed the discussions they began several months ago, even while Saab-Scania was in formal talks with Ford. The Fiat discussions “have assumed a different dignity during the past month,” the person said.

But he dismissed remarks attributed to Sweden’s Minister of Industry last week, suggesting that a concrete cooperation proposal from Fiat is probable, and an agreement likely, before year end. “We’re having these discussions but we don’t know if the results will be positive or when anything will happen,” he said. “We can be hopeful and some people are optimistic. But we negotiatied with Ford for eight months and look what happened.”

Many industry analysts believe the outcome could be different this time, although the long-term benefits of a Fiat link probably would fall short of what the alliance with Ford promised Saab-Scania. But the ranks of potential partners is shrinking and Saab-Scania can’t afford to play hard to get much longer, most analysts agree.

“There are terrible problems of matching Saab-Scania’s special corporate culture with anybody,” said Daniel Jones, professor of motor industry management at the University of Cardiff’s Business School. “But things are moving away from them. They don’t have a hope of surviving on their own.”

The principal catalyst for a Fiat-Saab marriage would be capacity; the Swedes have plenty of it, Fiat too little. “I see an alliance as short-term expediency,” says Philip Ayton, auto industry analyst for Barclays de Zoete Wedd, a London-based securities firm. “Fiat’s biggest problem is a shortage of capacity so it can continue pressing for market share outside Italy. Saab-Scania needs to fill their factories or they’ll never make money.”

A likely arrangement would call for Saab-Scania to assemble Fiat or Lancia models at a new oversized factory in Malmoe, Sweden. Saab built the factory assuming its output would reach 180,000 by the end of this year. Actual production will be about 110,000 cars.

Credit: Staff Reporter of The Wall Street Journal

Wall Street Journal. (Eastern edition). New York, N.Y.: Nov 14, 1989. pg. 1
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COMPANY NEWS; Fiat Called Set For Bid to Saab
SPECIAL TO THE NEW YORK TIMES

Published: November 30, 1989

LEAD: Fiat S.p.A., the Italian car maker, is prepared to offer more than five billion kronor, or about $780 million, for 51 percent of the car division of Sweden’s Saab-Scania A.B., Swedish Radio reported today. Quoting unnamed sources, Swedish Radio said the Wallenberg family, which is Saab’s largest single shareholder, was willing to let Saab sell a majority stake in the division.

Fiat S.p.A., the Italian car maker, is prepared to offer more than five billion kronor, or about $780 million, for 51 percent of the car division of Sweden’s Saab-Scania A.B., Swedish Radio reported today. Quoting unnamed sources, Swedish Radio said the Wallenberg family, which is Saab’s largest single shareholder, was willing to let Saab sell a majority stake in the division. But unspecified issues must still be overcome and no agreement appears imminent, according to the report.

Saab, which also makes trucks and aircraft, has been seeking a merger partner for the division. It has been losing money, and the company believes it is too small to survive in the increasingly competitive world car market.

Fiat, one of Europe’s largest car makers, is interested in Saab to expand its presence in the luxury car market. The companies have a long history of cooperating in marketing and development.

Talks about a possible merger between Saab and the Ford Motor Company ended in October.

A spokeswoman for Fiat, which is based in Turin, said the radio report had been premature. She said the companies were negotiating but had not reached an agreement.

http://query.nytimes.com/gst/fullpage.html?res=950DE5DA1E3EF933A05752C1A96F948260
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Fiat Called Set for Bid to Saab
New York Times. (Late Edition (East Coast)). New York, N.Y.: Nov 30, 1989. pg. D2

Abstract (Summary)
The Italian car maker Fiat SpA is prepared to offer about $780 million for 51 percent of the car division of Sweden’s Saab-Scania AB, but no agreement appears imminent.

New York Times. (Late Edition (East Coast)). New York, N.Y.: Nov 30, 1989. pg. D2
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COMPANY NEWS; Saab Said to Bar Offer by Volvo
REUTERS

Published: December 2, 1989

LEAD: Volvo said it made an informal proposal to take over its rival Swedish motor company, Saab-Scania, earlier this year, but the offer was rejected. Pehr Gyllenhammar, chairman of Volvo, said in a statement that he had made the offer to Peter Wallenberg, head of two investment firms that are major stockholders in Saab-Scania, after the company disclosed problems in its car division.

Volvo said it made an informal proposal to take over its rival Swedish motor company, Saab-Scania, earlier this year, but the offer was rejected. Pehr Gyllenhammar, chairman of Volvo, said in a statement that he had made the offer to Peter Wallenberg, head of two investment firms that are major stockholders in Saab-Scania, after the company disclosed problems in its car division. Mr. Gyllenhammar said that he had made the offer in the hopes of creating a strong car industry in Sweden. Possible terms were not disclosed.

”The offer was rejected by Saab-Scania,” a Volvo spokesman, Hans Rehnstrom, said. He said, however, that the issue could not be considered closed, ‘’since neither Volvo nor Saab has linked up with any foreign car manufacturer yet.” Saab-Scania said it had no comment. The company reported a 1.2 billion crown, or $188 million, loss for its car division in the first eight months of this year. Talks between Saab and the Ford Motor Company broke down last month. Saab is also talking with Italy’s Fiat S.p.A.

http://query.nytimes.com/gst/fullpage.html?res=950DE1D7113DF931A35751C1A96F948260&n=Top/Reference/Times%20Topics/Subjects/F/Finances&scp=2&sq=saab-scania%20+%20fiat&st=cse

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Secret Summer Talks of Auto Makers In Sweden Lead to Bitter Words in Fall

Copyright Dow Jones & Company Inc Dec 4, 1989

STOCKHOLM — An acrimonious public exchange between Swedish industrialist Peter Wallenberg and AB Volvo Chairman Pehr Gyllenhammar shed new light on prospects for a “Swedish solution” to Saab-Scania AB’s car-division woes.

Both Saab-Scania and Volvo are in talks with major European auto concerns about cooperation or possible mergers. Saab-Scania is negotiating with Italy’s Fiat S.p.A.; Volvo with France’s Renault.

In a surprise statement Friday, Volvo’s Mr. Gyllenhammar opened the door to a Volvo-Saab-Scania alliance and hinted at possible snags in the talks with Renault. The Volvo chief revealed that he offered to acquire Saab-Scania during private talks with Mr. Wallenberg this summer.

Mr. Gyllenhammar said a Swedish solution for the loss-making Saab car division was “feasible.” A Volvo-Saab-Scania combination could strengthen the Swedish auto industry, and help the two auto makers “stand stronger in negotiations with potential foreign partners,” he added.

Mr. Wallenberg, scion of the financial group that is Saab-Scania’s dominant owner, set off the fireworks Thursday. At a breakfast meeting with a group of civil engineers, he admitted discussing a possible Volvo-Saab-Scania merger with Mr. Gyllenhammar. The talks didn’t lead anywhere, Mr. Wallenberg added, because the two leaders agreed such a combination would require closure of at least one, and possibly two car plants in Sweden and cost the jobs of thousands of auto workers.

Saab-Scania already admitted contacting Volvo and other car makers about possible cooperation this year. But at the time Saab-Scania officials insisted the talks with Volvo had ended quickly — and Volvo officials flatly denied any interest whatsoever in a merger with archrival Saab-Scania.

In 1977, the two Swedish auto makers agreed to merge. But the plan collapsed because of opposition from both companies’ managements. After that, the companies’ relations stayed frosty. The gulf widened in the early 1980s when Volvo and the Wallenberg group fought a bitter public takeover struggle.

That Messrs. Wallenberg and Gyllenhammar had met face to face so recently raised eyebrows in markets here. But most analysts viewed the news as further confirmation of the severity of the Saab car unit’s problems.

Mr. Gyllenhammar was travelling abroad Thursday. When he returned to Sweden the following day he fired off a statement challenging Mr. Wallenberg’s version of their meeting. “Considering the importance of the matter,” the Volvo chief wrote, “I feel it’s my duty to comment.”

The statement originally was intended for internal distribution to Volvo staff world-wide. But late Friday, it was also released to Swedish news agencies.

Mr. Gyllenhammar said he approached Mr. Wallenberg — not vice versa — “with an offer that Volvo would consider taking over the whole of Saab-Scania and thus also responsibility for future development of the Saab car division.”

The Volvo chief acknowledged that a merger “would create a large potential for rationalization” and require “heavy reduction in total employment.” But he added: “My judgment is that such rationalization will be necessary in any case to reduce or eliminate the Saab car division’s current losses.”

The overture to Saab-Scania’s owners “was made because all possibilities should be examined to produce the strongest possible car industry in Sweden,” Mr. Gyllenhammar said. He attached special importance to “raising the issue before either Saab-Scania or Volvo had forged links with foreign car makers making a Swedish solution impossible.”

During the weekend, a Saab-Scania spokesman played down the Volvo chief’s remarks. “For the moment the question of Volvo-Saab-Scania cooperation is of no actuality. We firmly believe an international solution is better for the Swedish car industry than a purely national one,” the spokesman added.

Market analysts remain puzzled over Mr. Gyllenhammar’s apparent about-face. Some analysts say the revived interest in Saab-Scania may stem from fears that talks with Fiat will be successful — leaving Mr. Gyllenhammar for the first time with a bigger rival in his own backyard. Volvo might hope to fuel opposition to a pact between Fiat and Saab-Scania among Swedish unions and parts of the ruling Social Democratic party bu pushing a Swedish solution, analysts suggested.

Others say the move is a sign of trouble in Volvo’s talks with Renault.

“If talks with Renault were going well, Mr. Gyllenhammar wouldn’t have any time left to fret about Saab-Scania,” one analyst said.

Credit: Special to The Wall Street Journal

Wall Street Journal. (Eastern edition). New York, N.Y.: Dec 4, 1989. pg. 1

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G.M. to Buy Half of Saab Car Unit

By PAUL C. JUDGE, SPECIAL TO THE NEW YORK TIMES
Published: December 16, 1989

LEAD: The General Motors Corporation surprised the auto industry today by announcing it would buy half of Saab-Scania A.B.’s troubled car-making operations. The move enlarges G.M.’s European presence and plugs a hole in the company’s product line, which needs models that can compete with imports like BMW and Mercedes-Benz.

The General Motors Corporation surprised the auto industry today by announcing it would buy half of Saab-Scania A.B.’s troubled car-making operations. The move enlarges G.M.’s European presence and plugs a hole in the company’s product line, which needs models that can compete with imports like BMW and Mercedes-Benz.
G.M. attributes Saab’s trouble primarily to its small size and figures it can bring economies of scale to the Swedish company, benefiting both partners. G.M. will pay $500 million for 50 percent of a new company, Saab Automobile A.B., that comprises Saab’s auto making assets.

Saab has been looking for a partner for several months as its sales and profits have dwindled, and even some company insiders were betting on Fiat S.p.A. Volvo A.B. and the Ford Motor Company also made offers for Saab, but it rejected those three, reportedly because it was unwilling to give up a controlling interest.
Instead Saab approached G.M., which only six weeks ago lost out to Ford in a bid for Jaguar P.L.C.

Saab-Scania will keep its profitable truck making, aircraft and military operations. The joint venture requires approval by the Swedish and United States Governments, and is expected to be completed by mid-January, G.M. officials said.

In addition to its equity investment, G.M. is committing $100 million to the company for use as operating capital to cover salaries, materials and equipment purchases for Saab, a G.M. spokesman said. Saab’s sagging car business lost $188 million in the first eight months of this year.

The cars built by the new company will be sold under the Saab name through Saab’s independent dealer network both in the United States and abroad, an attempt to preserve the prestige and customer base that Saab has built up, analysts say.

”It’s less expensive for a car company to buy a luxury division than it is to make one from scratch, mainly because of the high costs of setting up distributors,” said Scott Merlis, an auto industry analyst with Morgan Stanley & Company. Advantages for G.M. Debated Analysts said the financial advantages of the deal were less compelling than the improved position it provided for G.M. in Europe.

”G.M. will lose money on this in the first year, but the numbers are small enough that it’s not critical,” said Harvey Heinbach, an analyst with Merrill Lynch.
But some analysts questioned the wisdom of the deal.

”I don’t see what G.M. has gained,” said Maryann N. Keller, an analyst with Furman, Selz, Mager, Dietz & Birney. ”The Opel product line in Europe is already very strong, with models that aren’t all that different from the cars that Saab sells.”

Unlike Jaguar, which can bring out new models in a year or two with the help of Ford’s investment, ”Saab has nothing in the pipeline,” Ms. Keller said. Manufacturing costs in Sweden are among the highest in Europe, she noted.

”G.M. will probably make Saab profitable in a year or two if the currency situation is favorable, if component costs are saved and if costs at Saab’s plants are cut,” Mr. Merlis said. Saab’s View ”Our problem has been that our volume is too small,” said Kai Hammerich, an executive vice president with Saab-Scania in Sweden. The company’s market share in Europe is less than 1 percent. G.M. already has an 11.4 percent share through its Opel and Vauxhall subsidiaries.

”With a strong partner, we can get the resources to expand our business,” Mr. Hammerich said, adding that Saab expected to increase production and broaden its product line.

The deal does provide G.M. with an option to make cars at Saab’s three plants. In North America G.M. has too much car-making capacity, but in Europe, the only place it has earned profits on car-making operations this year, G.M. believes it could use more. Saab’s Potential Output G.M. officials estimate that the three Saab plants – two in Sweden, one in Finland – could turn out between 180,000 and 200,000 cars a year – about as much as a single American plant. But the Saab factories have been running at half to three-quarters capacity since the mid-1980’s, because of slumping sales.

With the company’s future uncertain, Saab’s sales in the United States have fallen 16 percent so far this year from a year earlier.

G.M. also plans to acquire a large stake in Saab’s automotive electronics business, which will be spun off into a separate company, Saab-Scania Automotive Electronics A.B. Saab will retain majority ownership of the electronics business, which is of interest to G.M. primarily because it makes a new direct ignition device that improves cold starting and prolongs spark-plug life.

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General Motors strikes deal with Sweden’s struggling Saab;

Copyright Houston Chronicle Publishing Company Division, The Hearst Corporation (the “Houston Chronicle”) Dec 16, 1989

STOCKHOLM, Sweden – Saab-Scania AB surprised the auto world Friday by agreeing to sell half of its struggling Saab car division to Detroit’s General Motors Corp. for $600 million, instead of striking a widely expected deal with Italian carmaker Fiat SpA.

Under the deal, General Motors and Saab-Scania will run Saab as equal partners in a new company making cars under Saab and GM nameplates.
Saab has been hit by weak sales in recent years despite its long-standing image as a maker of quality cars. Its diversified parent has been seeking a partner to invest in the automobile division.

The pact with GM, the world’s largest carmaker, came as a surprise.

GM stock dropped $1 to close at $42.50.

Swedish newspapers had reported Friday morning that they expected an imminent deal that would have merged Saab with Fiat’s Lancia in a sports car company controlled by Fiat.

Saab was driven to find a partner by a turndown linked to price increases and intense competition.

Its relatively small size has been a handicap in an industry increasingly dominated by a handful of global carmakers building up for the unification of European Community markets in 1992.

“Saab is getting a sweet deal. They are getting the money, effective control of the company and all the benefits of being part of the huge GM empire,” said a car analyst at London brokerage firm James Capel.

GM was playing catchup with Detroit rival Ford Motor Co. in a high-stakes battle to acquire a prestigious European nameplate. Ford acquired Britain’s Jaguar Plc for $1.6 billion last month after GM also tried to buy Jaguar.

U.S. auto analysts saw GM’s strategy as a move to consolidate its recent strong gains in Europe and shore up its quality image at home, where sales have lagged.

The analysts said GM will get needed additional production capacity at a reasonable price to meet growing demand for its European cars, which are sold under the Opel and Vauxhall nameplates.

The importance of GM’s European operations cannot be underestimated since they contributed a hefty portion to the automaker’s third-quarter profits, the analysts said.

In contrast, GM’s core North American car operation has been posting losses of millions of dollars and saw its market share shrink to an all-time low of 31.8 percent at the end of November.

The joint venture will start Jan. 1. GM European chief executive Robert Eaton said at a news conference that he expects the operation to be profitable by 1991 at the latest.

Houston Chronicle (pre-1997 Fulltext). Houston, Tex.: Dec 16, 1989. pg. 2

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Copyright Chronicle Publishing Company Dec 16, 1989

Saab-Scania AB stunned the auto world yesterday by agreeing to sell half its struggling Saab car division to General Motors Corp. for $600 million, instead of striking a widely expected deal with Italian carmaker Fiat SpA.

Under the agreement, General Motors and Saab-Scania will run Saab as equal partners in a new company making cars under Saab and GM nameplates.

Saab has suffered weak sales in recent years despite its long-standing image as a maker of quality cars. Its diversified parent has been seeking a partner to invest in the automobile division. The Chrysler Woos Customers SEE PAGE B2 pact with GM, the world’s largest carmaker, came as a surprise because Swedish newspapers had reported that a merger of Saab and Fiat’s Lancia division appeared imminent.

Lancia is a sports car maker. Saab and Fiat had worked closely on developing the Lancia Thema, Fiat Chroma and Saab 9000 cars.

Saab was driven to find a financial partner by a turndown linked to price increases and intense competition.

Its relatively small size has been a handicap in an industry increasingly dominated by a handful of global carmakers who are expanding before the economic unification of the European Community in 1992.

“”Saab is getting a sweet deal,” said a car analyst at London brokerage firm James Capel. “”They are getting the money, effective control of the company and all the benefits of being part of the huge GM empire.”

GM is playing catchup with Detroit rival Ford Motor Co. in a high-stakes battle to acquire prestigious European nameplates. Ford acquired Britain’s Jaguar PLC for $1.6 billion last month after GM also tried to buy Jaguar.

Analysts saw GM’s venture with Saab as a move to consolidate recent strong gains in Europe and shore up its tarnished reputation for quality at home, where sales have suffered.

The new company, Saab Automobile, based in Trollhattan, Sweden, is producing Saab 900 and 9000 cars and will add a third luxury auto during the 1990s. Saab plants in Sweden and Finland also will be used to assemble GM cars.

“”Soaring costs for R&D (research and development) and ever-increasing international competition make it difficult for small-volume makers to survive on their own,” said Saab-Scania’s chief executive, Georg Karnsund.

The joint venture will start January 1. GM European chief executive Robert Eaton said he expects it to be profitable by 1991.

Fiat was said to have sought majority control in a venture with Saab and to have stipulated that the venture’s headquarters would be in a third country. The General Motors deal was said to have carried no such strings.

“”I think Fiat wanted a high degree of management control whereas GM was prepared to come in as a passive partner and provide funds,” said an analyst at Robert Fleming Securities in London.

San Francisco Chronicle (pre-1997 Fulltext). San Francisco, Calif.: Dec 16, 1989. pg. B.1

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Copyright Dow Jones & Company Inc Dec 18, 1989

General Motors Corp. agreed to buy a 50% stake in Saab-Scania AB’s troubled car operations, giving the No. 1 U.S. auto maker an opportunity to expand on its recent European successes.

In an announcement Friday, GM said it will pay $500 million for Saab-Scania’s car division, which will be moved into a new joint venture called Saab Automotive AB. Both GM and Saab initially will contribute $100 million each to provide operating capital for the venture. GM will have effective control, however, because it will name its chairman.

The two companies also will join forces in a separate auto-electronics partnership in which Saab-Scania will hold a majority stake. They also agreed to explore possible cooperation on defense work between GM’s Hughes Aircraft unit and Saab Scania’s Saab Missiles. The accords, scheduled to take effect Jan. 1, require approval by the Swedish government. But initial reactions from senior cabinet ministers in Stockholm were strongly favorable.

The deal ends Saab-Scania’s prolonged search for a partner to salvage its money-losing car business. Ford Motor Co., Fiat S.p.A. and Volvo AB each held extensive negotiations with the Swedish company. But those talks fell through when Saab-Scania balked at giving the other auto makers full control.

Acquiring the Saab stake gives GM extra manufacturing capacity and an additional luxury-car brand name it desperately needs in Europe. Although GM’s North American operations are unprofitable and have lost 11 points of market share during the past decade, its European operations have sparkled in recent years.

Still, GM officials have fretted over the lack of a true luxury car in their European lineup, especially in light of expected strong European demand for such cars in coming years. Those concerns prompted GM to aggressively pursue a deal for Jaguar PLC, which was eclipsed last month when Ford offered to buy all of the British luxury car maker for $2.5 billion.

“The Opel line only reaches up to a certain level and we aren’t in the really high, prestigious end of the car business in Europe,” said John F. Smith Jr., GM’s executive vice president in charge of international operations. “We’d very much like to participate more fully. And we think the {Saab agreement} gives us an excellent opportunity to do that.”

GM officials say the terms they reached with Saab are similar to the terms they were negotiating with Jaguar. But while GM will wind up paying much less for Saab, the Swedish car maker’s luxury image isn’t as strong as Jaguar’s.

GM officials say they plan to fix that by beefing up Saab’s current two-car model range, adding such features as rear-wheel drive, four-wheel drive and a much-needed V-6 engine, and moving the brand further up-market with a new top-of-the-line car. Robert J. Eaton, president of GM Europe, envisions competing head-on with “the top product in the European market,” in the “general range” of the most exclusive models offered by Bayerische Motoren Werken AG or Daimler Benz AG.

That promises to be a tall order. Industry analysts said engineering a totally new rival to BMW and Mercedes would take at least five years and call for a crash campaign to polish Saab’s brand cachet.

With a minuscule home market, Saab is heavily dependent on export — a situation ill-suited for the aggressive competition and accelerating consolidation sweeping Europe’s auto industry. The U.S. is Saab’s biggest single market, accounting for about one-third of car sales. But North American demand has weakened significantly, which is the main reason the Saab car unit expects a 1989 operating loss of nearly two billion kronor ($318.6 million).

But GM and Saab officials said Saab will continue to be sold as a separate brand. GM officials also said they expect Saab Automobile to be profitable by 1991, thanks mainly to a contract to build some of GM’s European models in Saab’s underused plants. Jubilant Saab-Scania Chief Executive Officer Georg Karnsund boldly predicted Friday that the joint venture’s expansion plans would lead to a doubling of Saab’s car-production capacity, to 360,000 units from the current 180,000, within a decade.

In addition, Saab will have access to GM’s parts basket and volume-buying power. Parts costs have have been high for Saab because of its modest annual volume of 120,000 cars. Scott Merlis, an analyst with Morgan Stanley & Co. in New York, estimates GM could reduce Saab’s raw material costs alone by 10%.

Of course, the venture still faces other problems. Saab-Scania is afflicted with rampant absenteeism, averaging about 23% this year, and sky-high employee turnover rates well above 20% a year.

After Ford spurned Saab-Scania and Jaguar eluded GM, a match became more likely. But it still took some behind-the-scenes matchmaking to get the courtship off the ground.

According to a senior Saab-Scania director, Norway’s former Defense Minister Otto Grieg Tidemand was the chief go-between. Mr. Grieg Tidemand is a close ally of Sweden’s Wallenberg group, Saab-Scania’s dominant owner. He also serves on GM’s international advisory board.

The first meeting took place in GM Europe’s head office in Zurich, Switzerland, on Nov. 20 and the deal was concluded after a visit by GM Chairman Roger B. Smith to Stockholm last week.

Credit: Staff Reporters of The Wall Street Journal

Wall Street Journal. (Eastern edition). New York, N.Y.: Dec 18, 1989. pg. 1

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Copyright USA Today Information Network Dec 18, 1989

Ribbon Label: SPECIAL REPORT: THE GM-SAAB DEAL:2

General Motors Corp. gets a bargain by agreeing to buy half of Swedish automaker Saab for $600 million, analysts say.

For one-third the cost of developing a single new car model, GM gets a distinctive line of sports and luxury sedans and enough unused factory space to build 70,000 more cars a year in Europe, where GM plants are running at capacity.

“It’s a sweet little deal,” says auto analyst Philip Fricke at Prudential-Bache Securities.

It’s not without risk. Both makers are suffering poor sales and must spend heavily to reverse that, analysts say. Still, “The combination makes sense,” says Kidder Peabody analyst Jack Kirnan “The $600 million is money well-spent.”

GM instantly gets a credible contender in the fast-growing European and U.S. luxury markets. The link with Saab “gives GM more flair to appeal to the thirtysomething crowd,” says analyst Thomas Galvin at C.J. Lawrence, Morgan Grenfell.

Says GM spokesman Jack Harned: “We expect to benefit from an accepted prestige, premium, luxury marque.”

Saab, in turn, gets financial and manufacturing help from GM to develop new Saab models faster. And it can use GM’s buying power to hold down costs. Analysts say Saab must keep prices down and pump out more new models to reverse its two-year sales slump.

Saab has just two model lines: the 900 and the larger, more luxurious 9000. U.S. base prices: $16,995 to $32,995.

Saab has a split personality. Its cars manage only average reliability and are dreadfully expensive to fix, according to surveys by Consumer Reports magazine.

Nonetheless, Saab does a good job winning over owners of rival brands, then turning them into repeat Saab buyers, according to research by J.D. Power & Associates.
The deal, announced Friday: Saab-Scania AB, a maker of cars, trucks and jet planes, will sell half- ownership in its car division to GM for $600 million. Saab and GM each pick five of the 10 board members of the new jointly owned car operation, called Saab Automobile AB, which begins life Jan. 1.

The board split and GM’s promise to let Saab operate independently provide the autonomy Saab couldn’t get in earlier merger talks with Ford Motor Co. The deal stunned Italy’s Fiat Auto SpA, which also was negotiating for Saab.

Saab Automobile’s headquarters will remain in Sweden, and it will continue producing Saabs for the USA and other markets. It also will build some GM European models.

GM gets half- ownership of two auto plants, an engine factory and a transmission plant, all in Sweden; and half-ownership of one auto plant in Finland.

Saab factories could build 180,000 autos a year. They are building just 110,000 now because sales are slow. GM can use the excess capacity to build more of its hot-selling European brands, Vauxhall and Opel.

Saab says the GM deal will let it complete development of more luxurious versions of the 900 and 9000 in the next few years, plus a new luxury model and a six-cylinder engine.

GM’s purchase is a blue-light special contrasted with Ford’s $2.5 billion purchase of British luxury- auto maker Jaguar, which sells about half as many cars as Saab does.

Saab sales suffer

Higher prices and more competition have hurt sales by Sweden’s Saab.
[Table]
Calendar year U.S. car sales
1984 32,768
1989 33,300(1)
Calendar year Worldwide car sales
1984 102,550
1989 115,000(1)

1 – Estimate Source: Saab-Scania, J.D. Power and Associates, USA TODAY research COMPLETE TEXT NOT AVAILABLE
CUTLINE:SAAB 9000S: 1990 5-door hatchback has base price of $25,995. CUTLINE:SAAB TURBO RAGTOP: Priciest of the 900 series at $32,995.

USA TODAY (pre-1997 Fulltext). McLean, Va.: Dec 18, 1989. pg. 04.B