Saab: the inevitable rescue!

Just when all seemed lost, General Motors and Spyker appear to have arrived at an agreement to resolve the future of Saab. The question that emerges is: was the rescue inevitable? Or to put it another way: is Europe unable to accommodate restructuring in the automotive industry? From a pure economics perspective, the loss of …

Just when all seemed lost, General Motors and Spyker appear to have arrived at an agreement to resolve the future of Saab. The question that emerges is: was the rescue inevitable? Or to put it another way: is Europe unable to accommodate restructuring in the automotive industry?

From a pure economics perspective, the loss of Saab from the ranks of the automotive industry appeared inevitable. The brand had dwindled into uncertainty as volumes also declined and profitability became a distant memory. With widespread surplus capacity across Europe and scant prospect of substantive market revival, rational economics or free-market forces says that the weaker, less efficient producers are consigned to history.

It should not be forgotten that every rescue in this sense increases the pressure on the remaining OEMs and production locations. Clearly the political imperative in Sweden was profound, not least because Trollhattan, the home of Saab, is essentially a one-company town and closure would have resulted in local crisis. So, The European Investment Bank has stepped in to provide substantial loans, underwritten by the Swedish government, to enable Spyker to purchase Saab at a ‘bargain’ price. This despite the fact that Spyker is a business that has no experience of the volume automotive industry; and it is hardly a success story in the more esoteric world of performance sports cars.

At present there seems to be a distinct lack of an overall coherent strategy in terms of managing a transition in this industry

How often will this story be repeated in the future and at what cost to the emergence of a genuinely competitive automotive industry in Europe? Could the money spent here be better used to encourage entrepreneurial new entrants with radical environmental technology?

Europe is replete with iconic brands for which there is understandable nostalgia. Europe is also replete with evocative production locations that are synonymous with a century of embedding in this most charismatic of industries. At present there seems to be a distinct lack of an overall coherent strategy in terms of managing a transition in this industry in the face of new competitive threats from lower cost production locations, new demands in terms of environmental technologies, and new aspirations from consumers. All we have is this sort of reactionary response to crisis, with hasty deals cobbled together in a desperate bid to salvage something from the wreckage.

this case illustrates the need for those concerned with industrial policy in Europe to take a longer-term and strategic view of what is to be achieved by intervention, and what sort of industry should be created in the future

Of course, it has to be hoped that if something can be saved from Saab and a new future constructed then that hope should be given the best possible opportunity. Over 3,000 jobs are at stake in the plant, plus many more in suppliers, if Saab does close. But if nothing else this case illustrates the need for those concerned with industrial policy in Europe to take a longer-term and strategic view of what is to be achieved by intervention, and what sort of industry should be created in the future.

To that extent, this is a case of an inevitable end being thwarted by an almost-equally inevitable rescue. But before the people of Trollhattan start celebrating, there needs to be a clear understanding of the magnitude of the task ahead.

Dr Peter Wells is a Reader at Cardiff Business School, where he is a Co-Director of the Centre for Automotive Industry Research and leads the automotive industry research programme within BRASS, also in Cardiff University. Dr Wells is also a director of AutomotiveWorld.com’s sister website AWPresenter.com. He can be contacted on wellspe@cardiff.ac.uk.

The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.

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