Confidence in Saab the key to profits: Spyker CEO
Spyker Chief Executive Victor Muller smiles at a news conference as he and Saab CEO Jan-Aake Jonsson (not in picture) announce that Spyker would buy Saab from General Motors in a deal worth $400 million in Stockholm January 26, 2010.
Credit: Reuters/Bob Strong
AMSTERDAM |
AMSTERDAM (Reuters) - Loss-making Swedish auto maker Saab will return to profit in the "foreseeable" future, the chief executive of its buyer Spyker Cars (SPYKR.AS) said, and the key will be to restore confidence in the distinctive and quirky brand.
The Dutch luxury carmaker, which produces several dozen handmade sports cars a year, clinched an audacious deal to buy Saab from General Motors GM.UL this week, rescuing the brand from looming oblivion. But skeptics have said it faces many challenges -- ranging from outdated designs, to high labor costs -- in resurrecting the firm.
"It's all about the restoration of the confidence in the company. Customers have been very reluctant to buy because of the uncertainty surrounding the brand," Spyker Cars Chief Executive Victor Muller told Reuters in an interview on Friday.
The number of Saabs sold last year slumped to 39,903 from 94,751 in 2008. Muller blames this on customers' inability to get finance, so finding ways to provide financing will be an important step to boost sales.
Much will also hinge on the development of the new generation Saab 9-5 and the 9-3, and Muller has stressed the new combined company will have enough capital to fund the development, adding that the business plan has taken into account the possibility of a slow economic recovery.
"Saab has to do nothing but regain its existing and old customers because that in itself would be in enough to create a very strong business model," Muller said.
INVESTOR CRITICISM
While outlining his business vision, Muller also dismissed investor criticism over the fact he would soon hold more than a 30 percent stake in the new combined company, obligating him under Dutch law to make a full public offer for the firm.
"There is a 30-day grace period if you're over 30 percent, and the period only starts to run once the deal is done," Muller said. "So it is just way too early to say anything sensible about that."
Dutch investors group VEB has criticized the secrecy around the financing and structure of the deal to buy Saab, with Muller buying out the 29 percent stake in Spyker Cars held by Convers Group, a Russian bank controlled by the Antonov family.
Muller also financed the deal via a newly-established investment company, but has declined to reveal who his backers are, telling Reuters he has signed a confidentiality agreement.
And although he did not indicate he would make a public offer for the company, Muller said his options include selling shares in the market, selling shares to an investor, or making a public offer for the company.
But he added any public offer would be made against the average price of Spyker shares over the past year and that investors would be unlikely to offer their shares at that price given that the offer price would be below the current market price.
As hopes of a deal between Spyker Cars and Saab rose in recent weeks, Spyker shares have risen 70 percent since January 1, hitting a peak of 6.8 euros on Wednesday a day after the deal was announced. They have since fallen back to 3.60 euros.
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Does this matter now? Of course it does – if this is the kind of investor Mr. Spyker is or was in business with, it says much about Character! Spyker is weak, inexperienced and closely connected gangsetrs.
No way will this deal be permitted to close with this type of buyer.
Spyker has to overhaul Saab’s existing corporate culture. Saab’s workforce consists of people coming from a radius of about 200 km from Trollhattan. The far most significant reason for an individual to be accepted by the workforce community is his/her geographical origin. The Saab spirit consist of a strong sense of unity within the all white workforce based upon their origin. The inbreeding sequence is quite high too. That is why there are many low qualified people having high positions, because there are usually not enough eligible candidates available. For those who have high qualifications and do belong to the big Family the sky is the limit. The corporate culture has a very strong will power always going its own way and leaving the management with only one single option which is to follow the majority opinion. That is why the new 9-3/2003 did not have enough number of common parts with Opel Vectra creating excessive costs for parts that were not sufficiently tested, creating excessive guarantee costs.
Prior to the involvement of GM in 1991, the previous owner Saab-Scania did not have much control over its car division, where the engineer’s were enthusiastic in always designing their own components and did not like using ready to use parts. That is why when assembling the 9000 model many tools were needed which prolonged the production time/cost. By then each division created its own secret specifications and standards and there was not much communication amongst different sections. By then Saab-Scania decided to get rid of its car division, giving it to a mega corporation who knows the art of making cars effectively. GM took over and started to implement its development process in Saab. Ever since 1991 the work force at Saab reported to GM management what they wanted to hear but conducted the work as they always used to do. There was never any cost awareness at Saab. They were used to produce cars that never covered its cost.
GM continued to pump in money because the amount of money needed was a very tiny fraction of GM’s annual budget, so it was not a big deal. It went on until 2003 when GM started to find it difficult to borrow more money for its own lost generating luxury car business. Then they decided to merge Saab and Opel into GME. May be this time GME could trim the business. Opel never recognised Saab as a significant player producing 120 000 car/y and generating no profit. Incomparable with Opel’s 1 700 000 car/y. Saab looked at Opel as a mass producer who does not understand the art of making luxury cars where cost was not an issue. GM had very high hopes in its global product development and badge engineering. The local organisational structure at Saab did not meet the needs of a small producer like Saab but it fitted correctly into GM’s global organisation. There were too many “managers” with no subordinates. Meanwhile Saab started to produce Cadillac BLS on its 9-3 platform, making 2000 car/y.
Saab could have used a fraction of the BLS expenses to produce its 9-3 AWD. The top GME management came entirely from Opel, treating Saab like a poor villager to be taken care of the wealthy relatives in the city. Saab was directly run by Opel since 2003, who planed for a termination of Saab by 2010. By 2009, GME closed/sold Saab’s engine development, engine plant, transmission plant, and design department.
What else should Spyker do?
Spyker should increase the sale volumes with the existing vehicle content at its current price. Until the release of the a new 9-3 by 2013/2014, Spyker needs to utilise the opportunities for face-lifts and model year changes in order to improve the content of 9-3/9-5 models providing a legitimate reason for increasing the retail price.
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