killed Saab Automobile? - Business School - University of Edinburgh

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own 'platform' and body, and sometimes also powertrain) this changed, most significantly in the mid- 1990s, with increased use of common of components and platform sharing across models. To quantify this development, in 1990 in Western Europe the average production volume per body style was 129,000 units per annum. At that time there were about 60 different platforms in use across all European manufacturers. By the mid-2000s this had fallen to only 46 platforms, each of which saw an average volume of 269,000 units per annum. At the same time, the production volume by bodystyle dropped to 69,000 units annually, a decline of almost half. lxix Put simply, companies were squeezing more variants of vehicle in the marketplace from far fewer underlying fundamentals. This meant that firms that were unable to spread their development costs across several models based on the same platforms now essentially had to recover these costs from only half the sales volume. This was a fundamental shift in the economic foundation of the auto industry. It was no longer necessary to achieve scale by producing many, perhaps hundreds of thousands, of copies of one single design (ie model), but by producing a wide variety of models on a handful of shared platforms. This trend favoured larger manufacturers with wide portfolios of models who enjoyed good market coverage but who also could share development costs across these models. The VW Group is a good example of this, at one time building no fewer than seven models across four brands on a single platform, namely its A04 (Golf) platform lxx ). This situation favours auto groups with integrated product development operations who enjoy much better economies of scale, which in turn lowers their cost base, leaving more resources for product development. 200,000 150,000 100,000 50,000 0 Global sales in units, 1947-2011 1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 FIGURE 3: SAAB'S GLOBAL SALES, 1947-2011. SOURCE: WARD'S AUTOMOTIVE, SAAB ANNUAL REPORTS. Faced with this situation, it is not clear that Saab’s management had a great deal of room for manoeuvre. Achieving scale through organic growth (as BMW did) was never on the cards, and without that the decisions came down to choices of partners or owners (the route taken by companies such as Jaguar, Land Rover and Volvo). Here the tie-up GM clearly failed to deliver the goods for Saab. Caught in the dilemma between integrating with GM products in order to secure cost savings and retaining its own brand and uniqueness by remaining differentiated from GM, Saab struggled to realize the advantages of platform sharing with its parent whilst maintaining its own brand identity. Even as part of GM, Saab never managed to surpass 150,000 units per annum (see chart above). Audi and BMW, in comparison, have each exceeded 1,000,000 units per year. 23
Was GM the right partner? GM was Saab's owner, in whole or in part, for almost 20 years. So why could GM not make it work? After all, as the largest car manufacturer in the world for most of that time GM had both the financial resources and knowledge necessary for success in the automotive industry. Was GM the real culprit in Saab's demise? Many observers have argued Saab’s decline was a consequence of brand mismanagement by GM. Our view is that this is too simplistic. To GM’s credit, it supported Saab, despite Saab’s losses, in almost every year of its 20 year ownership of Saab (with the exception of 1994, 1995 and 2001). But GM’s configuration in Europe as a very high-volume producer of economy to mid range cars sat uncomfortably with Saab’s niche of individualism, technological sophistication and premium positioning. Saab for its part resisted necessary attempts by GM to standardize and cut costs by sharing technology with its Opel and Vauxhall models. So although GM has been accused of failing to understand Saab's brand it had little choice but to try to integrate Saab into GM Europe. Saab however felt that GM's interference was counter-productive to its success, and stubbornly resisted attempts to move it towards such integration. There was palpable friction because these two firms were simply very different. Critical to the success of an alliance or merger between two car companies is the scope for synergy by pooling resources, sharing knowledge, and economies of scale. In the absence of these, there can be little hope of long term success. More likely than not, the weaker partner, generally the acquired firm, will keep losing money, and eventually the parent will discard the loss-making subsidiary as happened with GM and Saab, BMW and Rover and Ford and Jaguar-Land Rover. A key element in successful automotive mergers is ‘complementarity’, that is, where both firms gain something from the partnership. This can come in many forms: access to technology, access to capital for investment, lower cost by sharing platforms and components, but also non-production synergies, such as access to new markets. The Volkswagen Group is an example of a firm that has executed this strategy very well. Within the Group there is extensive sharing of platforms, powertrains and parts across brands in the Group (Audi, Seat, Skoda and VW) whilst allowing each brand an identity appropriate to its particular market. This creates economies of scale and means that lower volume models can be offered at a profit (or to put it another way, that diversity of models can be offered without a major cost penalty). A less obvious example is Renault-Nissan. In 1999 Nissan was burdened with debt and almost bankrupt and merged with Renault. At first glance these two firms had little in common and at the time analysts were sceptical that the merger would work out. As it has turned out Renault and Nissan had strongly complementary capabilities, market presence and compatible product architecture, as shown in the table below. Being different in some respects but compatible in others is clearly important (see Table 1 for an overview). An example of a failed merger is the DaimlerChrysler tie-up, which lasted from 1998-2007. Here both firms had rather similar regional coverage, both having a strong presence in the US, both being weak in emerging markets. They employed very different product architectures (front wheel-drive at Chrysler and rear-wheel drive at Mercedes, so only a single vehicle was ever shared between the two firms: the ‘Crossfire’, a rebadged Mercedes SLK). The two firms had radically different brand identities and market positioning. 24
Page 1 and 2: WHO KILLED SAAB AUTOMOBILE? AAAUTOM
Page 3 and 4: Audi, whose parent, the Volkswagen
Page 5 and 6: I/ THE DEATH OF AN AUTOMOTIVE ICON
Page 7 and 8: Merger with Scania In 1968 Saab ann
Page 9 and 10: million for 50% ownership of Saab,
Page 11 and 12: duplicate models, dumping unneeded
Page 13 and 14: Saab Spyker Automobiles. Saab’s s
Page 15 and 16: Within three months, Muller was cla
Page 17 and 18: increasing number of suppliers had
Page 19 and 20: During October, negotiations with Y
Page 21 and 22: III/ ANALYSIS: WHAT WENT WRONG? The
Page 23: The automotive industry typically s
Page 27 and 28: this revival plan and did not propo
Page 29 and 30: Under this revised policy, attentio
Page 31 and 32: conveying messages of craftsmanship
Page 33 and 34: to be too much, and the company was
Page 35 and 36: product development programmes. Onl
Page 37 and 38: ACKNOWLEDGEMENTS lxxxv This report
Page 39 and 40: ENDNOTES i Olson (1987) ii Olson (1
Page 41: http://www.youtube.com/watch?v=Wxeb

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