killed Saab Automobile? - Business School - University of Edinburgh

Under this revised policy, attention has shifted away from joint ventures with foreign firms, towards
developing local capabilities. Following the lessons of several failed acquisitions (e.g. the acquisition of
faltering Ssangyong by SAIC) there is a growing concern that taking over failing foreign auto firms is not
a good route route forward.
As Williamson and Raman describe in the 2011 article, there have been several common mistakes in
Chinese acquisitions of foreign firms in all industries, not just the auto industry. First, Chinese firms
have pursued inexpensive deals with unprofitable businesses that often were lacking any economic
case for continuation. Pang da and Youngman’s pursuit of Saab could well fit into this category.
Secondly, there has been a focus on companies whose value consisted mostly of brands, systems,
culture and people -- all of which are difficult to integrate across borders lxxiv .
Learning from past mistakes, the NDRC now actively discourages deals that were not deemed to be in
the national interest of developing globally competitive car firms. In 2009, the proposed acquisition of
GM’s Hummer by Sichuan Tengzhong Heavy Industrial Machinery was blocked on the grounds that the
Chinese acquirer had insufficient capital and experience. In this context, it is unsurprising that Chinese
authorities were not supportive of the various deals proposed for Saab. Neither the Hawtai and the
Pang Da-Youngman acquisitions of Saab would clearly have created a globally competitive car firm.
The NDRC never formally endorsed the Saab acquisition by the Youngman-PangDa consortium in
public, although ‘in principle’ support was allegedly voiced infromally.
Still, one might ask what the Pang Da and Youngman’s purchase of Saab might have achieved had it
gone ahead, both for Saab and for Pang Da and Youngman? For Saab, the most immediate benefit
would have been the infusion of cash to meet its outstanding liabilities, which - taking an optimistic view
- could have restarted production in the near term. Furthermore, there was a promise of investment to
raise production to 200,000 units. The other great opportunity for Saab was better access to the
Chinese car market, which is the second-largest in the world, and still the fastest growing. Through
Pang-Da's dealer network this access might have been facilitated in a reasonably short period of time.
On the other hand, in Saab’s main established markets (the US, UK and Sweden) the 9-5 had already
proved to be largely a market failure, unable to generate sufficient sales to allow the company to breakeven,
and this was before a break in production of several months and associated bad press. Even
taking a lasting damage to the brand aside, the press coverage of 2010 and 2011 put enormous strain
on residual values of Saab vehicles. As a result it became virtually impossible to sell Saab cars, and at
times even residual value guarantees had to be granted to buyers, making the sales deeply risky and
unprofitable for Saab. Against this backdrop it seems questionable whether an increase in production
capacity would have resulted in any major improvement of Saab's financial position.
Further down the line, a key assumption behind any merger is that firms will be able to share
technology and generate economies of scale. Here it is even more questionable whether there would
have been any synergies between Saab and Youngman, which to date has built buses (mostly under
license) and only recently started producing entry-level passenger cars that were co-developed with
Lotus Engineering. In our assessment there was little or no synergy in production activities.
So what was in it for the Chinese partners? This question is harder to answer, as both Pang-Da and
Youngman played their cards close to their chests. For one, the new Saab 9-5 offered a quick and
economical access to up-to-date (GM-based) vehicle technology, as well as a globally recognised
automotive brand. Both are rare in the Chinese car market, and generally expensive to acquire.
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