killed Saab Automobile? - Business School - University of Edinburgh

III/ ANALYSIS: WHAT WENT WRONG?
The collapse of Saab raises many questions about why the demise occurred and whether it was
preventable. In this section we will offer our perspective on the following key questions:
1. Was Saab’s demise inevitable?
2. Was GM the right partner?
3. A strong brand but a weak business?
4. Did Spyker really have a chance?
5. Could China have saved Saab?
6. What similarities are there between Saab’s collapse and the last collapse of a major auto firm,
namely Rover in 2005?
Was Saab’s Demise Inevitable?
There is considerable overcapacity in the automotive industry, in the order of 30% globally. This has
been a long-term problem for the industry and means that even though global sales have been rising,
there is fierce competition. Developing countries often see an indigenous automotive industry as a
symbol of and force for economic development. This creates pressures for new capacity to be added at
the same time as mature economies are reluctant to relish their auto industries due to the social and
economic consequences. Car manufacturers thus have to define their competitive positions and carve
out niches that are large enough not only to support current operations, but also to generate the very
substantial financial resources needed to develop new vehicles that are competitive in terms of cost,
quality and performance. The development cost for a new model, on a stand-alone platform, is
currently in the order of $1bn.
Although having a very loyal band of customers, in comparison to its direct competitors such as Audi
and BMW, Saab was unable to achieve these economies of scale. Thus, a major contribution to Saab’s
failure came from strong competitors who not only constrained Saab’s ability to grow but actually ate
away at Saab's niche market.
Our analysis suggests that three factors combined to seal Saab’s fate:
1/ Saab was positioned in a niche market, which by definition meant that it would always find it
difficult to sell large volumes of vehicles. Herein lies a conundrum for any brand that emphasizes
difference from the mainstream as part of its brand values. Too different from the mainstream and
there will be insufficient buyers; not different enough and there will be an insufficient price
premium to compensate for the lower volumes. This was one of Saab’s fundamental problems.
Tight competition in the luxury segment meant that Saab could not command high margins on its
sales, which put the firm at a continued disadvantage against its larger competitors who are able
to offset their development cost across more many more units. Saab was caught in the 'unhappy
middle' between low-volume and high-margin producers further upmarket, and higher-volume
lower-margin producers adjacent to it. This position was not sustainable.
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