killed Saab Automobile? - Business School - University of Edinburgh

The automotive industry typically suffers earlier and deeper recessions than other sectors lxviii , as
customers can usually postpone the purchase of cars in the face of financial uncertainty. This
particularly hurts financially marginal companies, who may already face relatively weak demand and
who lack a substantial financial buffer to ride out the storm. So it was with Saab who saw an 80% drop
in demand, from which it has never recovered.
This loss in volume had obvious financial consequences, as the next chart shows. Yet even prior to the
financial crisis Saab was largely loss-making, returning a small profit in only three of the 20 years that
GM owned it (1994, 1995, and 2001).
The increase in revenue in 2009 resulted from selling equipment for the older generation 9-3 and 9-5
models to BAIC for US$197 million, and so does not represent an improved trading position. The
company also de-stocked significantly, selling around 10,000 more cars than it made in this year.
In 2011, matters took a turn for the worse: the first six months to June saw losses rise nearly ten-fold to
€201.5 million ($289 million) from €21.9 million for the same period in 2010. By this point Saab had run
up short-term debt of the same value as its entire 2010 sales revenues.
30,000
25,000
20,000
15,000
10,000
5,000
0
-5,000
-10,000
Financial performance, 2000-2010
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Revenue (MSEK) After tax profit (MSEK)
FIGURE 2: SAAB'S FINANCIAL PERFORMANCE. SOURCE: ANNUAL REPORTS
Most company failures involve poor management decisions at certain points in the company’s history,
although the quality or otherwise of such decisions may only be apparent with hindsight. Such
decisions may result in poor allocation of resources, missed market opportunities, or failure to promote
and sustain the brand and image of the company, thereby threatening the success of the firm in the
market. Was Saab’s failure a function of poor management?
To answer this question one has to understand the economies of scale that underpin the auto industry.
While it was common up to the 1990s to develop and build stand-alone models (i.e. each model had its
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