Chinese cash injection to prop up struggling Saab

Saab produced 32,000 cars last year - well below the 120,000 analysts say it needs to break even. Photo / AP

Not for the first time, Swedish carmaker Saab is struggling for survival.

Its factory in Trollhattan, which employs 3400 people, has been idle for six weeks because its Dutch parent company, Spyker Cars, has been unable to pay its suppliers.

Just 18 months after Spyker paid General Motors US$400 million ($506 million) to take the loss-making firm off its hands, the future of Saab is again up in the air.

Well, not quite. Last week, one of the biggest Chinese car dealerships, Pang Da Automobile Trade, offered a €110 million ($196 million) cash injection. Pang Da has handed over €30 million for the delivery to Shanghai of 1300 vehicles, enough perhaps to allow Saab to restart production this week.

But obstacles remain. Saab's suppliers need convincing that Spyker will be able to pay its bills regularly.

And the biggest part of the deal with Pang Da, which will have the Chinese firm pay €65 million for a 24 per cent stake in the Dutch group, needs regulatory approval from Swedish stakeholders and the Chinese authorities - and that will take time.

A bigger problem is that Saab needs to set up a manufacturing joint venture in China to gain exposure to the booming Asian market. But Pang Da is not a producer, so the hunt is on to find a Chinese carmaker prepared to join the alliance. Only then will Saab have any hope of a go-ahead from Beijing.

During its 20 years under GM ownership, Saab hardly ever turned a profit. The popular view was that as GM's finances deteriorated, it starved Saab of investment.

But Spyker, headed by the enigmatic Victor Muller, has hardly been more successful. Last year, it produced just 32,000 cars, shy of its 50,000 target and well below the 120,000 analysts believe it needs to break even.

According to Garel Rhys at Cardiff business school, Saab has been on borrowed time for years.

"People call it a niche player but it's going up against the likes of BMW which sells 1.2 million units a year. Nor does it have a big backer like Audi, owned by Volkswagen. These days, you need to be a global player and Saab isn't one."

Saab's heyday was in the 1970s and 80s when its pioneering approach to turbocharging made the brand innovative and exciting.

But Tim Urquhart, an analyst with IHS Global Insight, says that, recently, Saab has been unable to differentiate itself from its German rivals. And it needs to come up with successful new models, in particular a replacement for its nine-year-old 9-3, its most popular car.

"Saab probably needs to go more upmarket. The Chinese don't want a reheated old-fashioned product. They want something classy and new."

Arguably what Shanghai Automotive Industry Corporation has done with MG Rover could be a template for Saab. SAIC is creating new models out of MG for the Chinese market and slowly introducing them to Europe. The new MG6 five-door "fastback" is a case in point.

But that still leaves Saab fumbling for a Chinese manufacturing partner and it has to be a good one. SAIC is China's biggest carmaker. Geely, which took over Volvo last year, is the country's fifth-largest.

"It's important they get in bed with the right company because the Chinese are looking to consolidate the sector," said Rhys.

Last week, Muller said he was optimistic about Pang Da which he described as "a forward-looking, profitable and well-capitalised public company that sees enormous potential for our brand in their home market".

Pang Qinghua, chief executive of Pang Da, was equally enthusiastic, saying new products such as the Saab 9-5 and 9-4X "make this the right time for Saab to enter the Chinese market". Separately, Spyker said last week that a new version of 9-3 could be released "at some point in 2012".

Urquhart is sceptical.

"I hope it works but Saab has limped from one crisis to the next. I wouldn't bet on it making it through the next 10 years."

- OBSERVER