killed Saab Automobile? - Business School - University of Edinburgh

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.
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