For sale
Jan 29th 2009
From The Economist print edition
Saab and Volvo are on the block.
But are there any buyers?
THE Swedish car industry is up for sale. Saab and Volvo are on the block because their
owners, General Motors (GM) and Ford respectively, can no longer afford to keep them. But
there are important differences. GM may have only weeks to divest itself of Saab, whereas
Ford is a slightly less desperate seller.
GM, which would have gone bust without the emergency federal loans it received at the end
of the year, faces a deadline on February 17th. It must show progress towards viability or risk
having to pay the taxpayer back at the end of March. Most attention will be focused on
negotiations with unions and bondholders. But GM also wants to show that it is close to
spinning off Saab as a separate entity, either to sell it or to let it sink or swim on its own. Ford,
which continues to believe it can survive without a bail-out, is under less immediate pressure
to dispose of Volvo, but would still love to find a buyer.
The differences between the two Swedish firms extend beyond those of their troubled owners.
Not only is Saab much smaller—it sold 125,000 cars in 2007, compared with Volvo’s
458,000—but it has been a much greater flop for GM than Volvo has for Ford. Speaking this
month at the Detroit motor show, Bob Lutz, GM’s vice-chairman, described Saab as a
financial disaster that had made a profit just once in the 20 years that GM has owned it (GM
bought 50% in December 1989 and the rest a decade later). Overall, owning Saab may have
cost GM up to $5 billion, and GM loses as much as $5,000 on every Saab it sells in America.
The only reason GM kept the company so long, said Mr Lutz, was that it loved the marque
and the cars. But in truth the relationship has never been happy. GM once saw Saab as a
potential rival to BMW. But whereas BMWs became the default choice of striving young
professionals in the 1990s, buying a Saab was a statement of eccentric individualism—
something utterly alien to GM’s corporate culture. GM constantly tried to force its often
stodgily conventional engineering on Saab in an effort to save money, while Saab, just as
stubbornly, attempted to preserve what was different about its cars, such as putting the
ignition on the floor by the gearbox. Not surprisingly, the results pleased neither GM’s
beancounters nor Saab enthusiasts.
Saab’s idiosyncratic way of doing things, and its powerful unions, make it unusually difficult
to sell. It has a strong brand, but one that is neither truly premium nor, these days, sporting. It
was once a pioneer of turbocharging, but its technology no longer stands out.
In December the centre-right Swedish government put together a bail-out package that would
provide Saab, Volvo and their suppliers with up to $3.5 billion in loans and credit guarantees.
But it is adamant that the money must be spent in Sweden. J
Göran Hagglund, state secretary in the ministry of enterprise, said this week that GM had yet
to present him with a business plan that would unlock the funding.
Might, for example, production of Saab’s biggest car, the new 9-5, scheduled to be built at
Rüsselsheim in Germany, be shifted to under-employed Trollhattan in Sweden? GM insiders
put the cost of the move at $200m on top of the $100m needed to prepare the car for launch at
the end of the year. There is also talk within Saab of moving production of the 9-4x crossover,
due for launch next year, from a GM plant in Mexico to Sweden. Work on the urgently
needed successor to the ageing 9-3 has been put on ice. Saab’s chief executive, Jan-Ake
Jonsson, maintains that once the market returns to normal his company can be profitable, but
his is a lonely voice.
Volvo, which Ford acquired in 1999 for a hefty $6.45 billion, has been a disappointment
rather than a disaster. The company has been modestly profitable for much of the time Ford
has owned it. But the losses have been mounting, especially in America because of the weak
dollar. In 2007, when it had its best-ever global sales performance, Volvo still lost $164m.
With sales for 2008 down 18%, the bottom line made grim reading when Ford announced its
results on January 29th. Volvo's losses last year amounted to nearly $1.5 billion, $736m of
which fell in the final quarter.
But the deciding factor is that although Volvo and Ford use a lot of common technology,
keeping Volvo does not fit with the “One Ford” strategy on which Ford’s boss, Alan Mulally,
has staked his firm’s survival. He has already sold Aston Martin and Jaguar Land Rover.
Volvo is another distraction Mr Mulally could do without.
Ford’s frustration with Volvo is that despite its many loyal customers, its well-earned
reputation for safety and the occasional hit, such as the XC90 sport-utility vehicle, it has never
quite been able to shake off its “sub-premium” image. Like Saab, Volvo sits uncomfortably
between the volume producers and such marques as Audi, BMW and Mercedes.
Even so, it has more to offer a potential buyer than Saab. It is bigger, has a global dealer
network and its sales are more evenly distributed between Europe, North America and
emerging markets, particularly China and Russia, where it has done well. And the justlaunched XC60 mid-sized crossover is proof that when it comes to safety and Scandinavian
style, Volvo has lost none of its mojo.
Whether anyone will want to take Volvo off Ford’s hands is another matter. Most of the big
European manufacturers have had a look and decided to pass. Despite persistent rumours of
interest from several Chinese firms, a bidder has yet to emerge. Stephen Odell, recently
appointed as the first non-Swede to run Volvo, insists that the only thing on his mind is
returning the firm to profitability. But Mr Mulally must be hoping that a buyer turns up long
before that distant day arrives.
Word list
On the block: to be offered for sale
Divest: to sell off
Viability: normal growth and development
Bondholders: someone who owns a bond certificate (a financial document)
Entity: a unit
Bailout: a rescue from financial difficulties
Dispose of: to get rid of
Decade : a period of ten years
Marque: a car model
Potential: possible
Strive: to make a lot of effort to achieve something;
Eccentric: an odd or unconventional behavior.
Stodgy: boring
Preserve: to keep in good condition
Ignition: the place where you put your car key to start the engine
Bean counter: a business manager who cares only about profits.
Ideosyncratic: an unusual, unconventional way of doing things
Brand: trademark
Turbocharge: to improve dramatically the performance of an engine:
Bail-out package: financial help to e.g. businesses with problems
Adamant: determined not to change your decision about something
Funding: a sum of money or other resources set aside for a specific purpose
Launch: to introduce to the public or to a market
Crossover: a model designed to appeal to a wider audience;
Successor: a person or thing that follows another
Hefty: involving a large amount of money
Mounting: rising
Sales performance. sales results
Dealer network: an organization of buying and selling things
Mojo: personal magnetism; charm.
Manufacturer: producer
Persistant: refusing to give up or let go
For sale - Saab and Volvo are on the
block. But are there any buyers?
Tasks
Odd one out!
1. Bob Lutz
2. gearbox
3. Volvo
4. XC90
Alan Mulally
turbocharger
Aston Martin
9-5
Göran Hägglund
ignition
Jaguar
9-4x
Jan- Åke Johnsson
engineering
Land Roover
XC100
In what context are the following sums mentioned?
125 000
______________________________________________________
$5000
______________________________________________________
$6,45 billion
______________________________________________________
$1,5 billion
______________________________________________________
Saab or Volvo?
1. Has a reputation for safety
2. Produced the model 9-3
3. Sold 458 00 cars in 2007
4. Has many loyal customers
5. Has the ignition on the floor by the gearbox
6. Was once a pioneer of turbocharging
7. Has a global dealer network
8. Has made a profit only once in 20 years
9. Produced the model XC60
10. Was bought by Ford in 1999
______
______
______
______
______
______
______
______
______
______
Fill in the gaps to make the sentences complete!
1. ____________ was recently appointed as the first non-Swede to run Volvo.
2. ______ would have gone bust without the emergency federal loans it received at the end
of the year.
3. GM once saw Saab as a potential rival to _____
4. Saab’s way of doing things makes it unusually _________ to sell.
5. Volvo has been modestly __________ for much of the time Ford has owned it.
Group work
1. Look up interesting facts about a car manufacturer, BWW, Honda, Ford etc, and present
it to the class.
2. Do you think the car industy should be supported by state loans and credit guarantees in
order to survive? Discuss!
Key
Odd one out!
1. Bob Lutz
2. gearbox
3. Volvo
4. XC90
Alan Mulally
turbocharger
Aston Martin
9-5
Göran Hägglund
ignition
Jaguar
9-4x
Jan- Åke Johnsson
engineering
Land Roover
XC100
In what context are the following sums mentioned?
125 000
The numer of SAAB:s sold in 2007
______________________________________________________
$5000
The money GM loses on every SAAB sold in the US
______________________________________________________
$6,45 billion The money Ford paid for acquiring Volvo in 1999
______________________________________________________
$1,5 billion Volvo´s losses in 2008
______________________________________________________
Saab or Volvo?
1. Has a reputation for safety
2. Produced the model 9-3
3. Sold 458 00 cars in 2007
4. Has many loyal customers
5. Has the ignition on the floor by the gearbox
6. Was once a pioneer of turbocharging
7. Has a global dealer network
8. Has made a profit only once in 20 years
9. Produced the model XC60
10. Was bought by Ford in 1999
Volvo
Saab
Volvo
Volvo
Saab
Saab
Volvo
Saab
Volvo
Volvo
Fill in the gaps to make the sentences complete!
1. Stephen Odell was recently appointed as the first non-Swede to run Volvo.
2. GM would have gone bust without the emergency federal loans it received at the end of
the year.
3. GM once saw Saab as a potential rival to BMW
4. Saab’s way of doing things makes it unusually difficult to sell.
Volvo has been modestly profitable for much of the time Ford has owned it.