Saab to Receive $524 Million in Loans From GM, Investor
General Motors Corp. said Monday that it will pump more money into Saab Automobile and could obtain full ownership of the struggling Swedish auto maker within three years.
GM and Saab co-owner Investor each will put $262 million in loans into Saab through 1997. In addition, GM will receive an option to buy some or all of Sweden-based Investor’s 50% stake in Saab in 1999 or 2000.
The move is a continuation of GM’s recent efforts to make its Saab investment pay off by taking greater control of the auto maker. GM acquired its half-interest in Saab in 1990. Saab’s success is far from assured, however.
“Saab has proven to be something of a black hole for cash for GM,” said Burnham Securities analyst David Healy. “At some point, they have to decide to fish or cut bait.”
GM is betting that new models and a pumped-up marketing budget will boost worldwide sales enough to make Saab more than the regional auto maker it is today.
Saab Chairman Louis Hughes said he believes Saab could become profitable as soon as 1998 if the company is able to boost annual sales closer to 150,000 vehicles from last year’s 98,700. Worldwide sales last year were $3.01 billion. Saab’s two models have only 0.2% of the U.S. car market, and that is its largest market.
Saab must introduce more models and enhance its marketing operations in Germany, Japan and the U.S., Hughes said.
“We’ve got the company back to a break-even point, and now it needs to grow,” said Hughes, who also is president of GM’s international operations.
Some analysts expressed skepticism.
Saab’s future “is really difficult to forecast right now,” said Gunnar Andersson, analyst at Handelsbanken. “Everything hinges on the success of the new models.”
GM has pumped $1.1 billion into Saab, not including the loans announced Monday, since the Detroit-based auto maker acquired its 50% stake for $600 million in 1990. Saab has turned an annual profit only twice since then.
The investment is “absolutely worth it,” Hughes said.
To survive in a global auto market, car makers need wide product ranges and high sales volumes, industry analysts say. Saab will use its new funds to try to achieve those.
Saab is using GM’s massive vehicle development operations to bring new models out faster and cheaper, analysts said. The new Saab 900 is based on a GM Opel car, for example.
“Certainly, being associated with GM gives Saab the potential to sell other models, including a truck or sport-utility,” said Lincoln Merrihew, a consultant with DRI/McGraw-Hill.
Next spring, Saab plans to introduce a third car model to complement its 900 and 9000 series.
Within a few years the car maker will have a station wagon. Company executives have said a compact car is not out of the question.
To sell the new cars, Saab will double what it has been investing in marketing and will pump money into its dealerships.
In the past, GM has denied that it had plans to take full control of Saab.
Hughes said GM is currently satisfied with half-ownership of Saab. The option agreement allows both companies to review the issue in three years, he said.
