Saab without tears

@FortuneMagazine December 20, 2011: 11:51 AM ET
Saab shuts down

R.I.P Saab

FORTUNE -- The news that Saab Automobiles filed for bankruptcy has spurred the usual round of breast-beating, finger-pointing, and name calling.

Automotive traditionalists are understandably upset that a brand with a long and storied history like Saab has wound up on the financial chopping block. The disappearance of a boutique automaker is like the extinction of a species -- its like will never be seen again. Saab will be as dead as the dodo.

Most of the blame for Saab's failure is being laid at the feet of General Motors, which bought a half-interest in Saab in 1990 and then the rest of it a decade ago.

GM (GM, Fortune 500), the critics say, didn't understand Saab. They weren't properly appreciative of its history and heritage, diluted its brand integrity by merging it into GM's production system, and failed to support it financially or managerially.

In fact, I would argue that Saab would have expired years ago had not GM taken it under its wing two decades ago. The reason is simple: Saab was simply too small to survive in its current configuration. At a time when German luxury makers like Mercedes-Benz and BMW make more than one million cars a year, Saab never sold more than 140,000 cars a year. Even Volvo made two or three times that many cars. Low production is fatal, because the auto industry is all about economies of scale. Trying to amortize the expenses of new model engineering, not to mention increasingly stringent safety and emissions technology, requires accounting gymnastics that are all but impossible unless volumes reach the hundreds of thousands.

The future was bleak. Saab was destined to remain small because its appeal was so narrow. While its owners may have reveled in being described as "quirky," their image never extended much beyond that of the corduroy jacket, Earth shoe wearing English professor -- not a broad base from which to build. Other European brands -- notably Audi -- did a better job of expanding their appeal.

The most disliked cars of 2011

Saab bore another burden that was unbearably heavy: its base in high-wage, low output Sweden. As Dave Herman, who ran Saab in the 1990s, was quoted as saying, most recently in Automotive News: "Beautiful, healthy young people could get a doctor's certificate and then hop on their motorcycle with their gal and go off to a lake somewhere. The daily absenteeism rate was 18%." On days when Saab employees came to work, productivity was poor and quality abysmal. Saabs historically ranked near the bottom of J.D. Power's initial quality ratings.

The combination of factors would have soon made it difficult for Saab to remain a viable proposition without GM's help. GM tried to ameliorate its problems by installing American managers, moving some production to Germany, and integrating its parts buying and engineering with Opel. It had some notable successes. It developed what was probably the best 9-3 ever.

Introduced in 2002, the second-generation model was built on GM's Epsilon platform that it shares with the Opel Vectra. Likewise, the 9-4x -- launched briefly this year before Saab effectively stopped operating last spring -- was based on a platform it shares with the Cadillac SRX. A superb crossover vehicle, it was refined, responsive, and beautifully finished. But with Saab making daily headlines as it careered from one crisis to another, it never had a chance in the marketplace.

That one big mistake that GM made was to buy Saab in the first place. And the blame for that can be laid at the door of Bob Eaton, who ran GM Europe at the time. Eaton, of course, would go on to become CEO of Chrysler where he arranged the notorious "merger of equals" with Daimler-Benz.

Flush with profits at the end of the 1980s, Detroit's Big Three went shopping for European brands. Ford (F, Fortune 500) won the bidding for Jaguar, and would also add Volvo, Land Rover, and Aston Martin to its portfolio. Chrysler acquired Italian supercar maker Lamborghini. And GM, not to be left out, grabbed Saab, with Eaton leading the charge.

It was the wrong move with the wrong company at the wrong time. GM CEO Roger Smith had bled GM dry with his factory automation schemes and grandiose spending plans, and GM had little cash to divert to Saab, which was already suffering from underinvestment. It had joined with Fiat, Lancia, and Alfa Romeo to develop the engineering that resulted in the Saab 9000, which was never fully accepted by Saab devotees because, for one thing, the ignition switch was located not on the floor as was customary with Saabs, but on the steering column. Although the 9000 would remain in production for 13 years, only a little more than 500,000 were built -- equal to two years output from a single Chevrolet plant.

Once it acquired Saab, GM tried to modernize it by upgrading quality and improving productivity. Its intentions were good, but the implementation was flawed. Its first stab at developing new models -- the 900 that came out in 1993 -- resulted in an unfortunate mashup of Detroit financing, German engineering, and Swedish production techniques. The 9-5, the successor to the 9000, was late and didn't arrive until 1997.

Saab just didn't make any sense for GM, and the numbers didn't work. Eaton was long gone, having departed for Chrysler in 1992, and Saab didn't fit into any of GM's long-term plans. It already had one underperforming European brand on its hands in Opel and had few resources to divert to Sweden -- especially when there was little prospect of a return. GM was committed to homegrown projects like Saturn that weren't paying off; throwing good money after bad at Saab didn't make any sense. Only too late did Saab get around to develop an all-wheel-drive system that would have reinforced its image as a rally champion and resonated with buyers in northern Europe and America.

GM had the best of intentions toward Saab, but while they went awry, it kept Saab alive through three recessions when it might have died of natural causes. Saab aficionados will mourn its passing, but at least this automotive invalid was kept alive for two decades past what could have been its projected expiration date. To top of page

Find Your Next Car

Get the latest car news:

  • -->

    Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.