At some risk of getting my head chopped off (again)…..
I’m still reading conversations between Saab fans occasionally that make me scratch my head a little. People seem quite adept at either changing history or altering the basics of economics with the belief that if they talk about it enough, their suggestions might become truth.
The legend of the Gordian knot (the simple version) saw a cart dedicated to Zeus and tied to a temple using a highly intricate knot. It was said that whoever could untie the knot would rule over all of Asia. When Alexander the Great arrived in Gordion, he got a bit tired of trying so he took out his sword and just cut the darn thing off.
NEVS face an uphill battle with Saab. A massive uphill battle. No matter which string they might pull first there seems to be an opposing force on the other end making their job far from straightforward.
Their recent announcement about building production facilities in China is the first real sign I’ve seen that plans might just be in place to make it work.
(The other recent announcement, to do with the corporate badge is nice, but means diddlysquat in the overall scheme of things.)
Production in China is the only realistic option for a company that bases its business plan on Chinese sales. No long-term Saab fan wants to see production based anywhere but Trollhattan, but the economic reality of a Chinese-focused firm is that they will have to build in China, either as their production base, or with Trollhattan continuing as a complement.
There are so many other problems to solve, however. People like to think they have solved them in theory, but the reality is that Saab’s problems aren’t solved in people’s minds. They remain very real right up to the point where very real solutions are found.
So just in case people are forgetting these Gordian contradictions in their musings, here’s a look at the puzzle that Saab has to solve.
Survival = Premium
You can’t be a small carmaker in 2013 and beyond and sell your product based on a low price. If you’re going to be small – and 200,000 units is a small carmaker (even if it would be a record+50% for Saab) – then you have to earn a decent margin on every car you sell. The conundrum facing NEVS is the same one that worried me with Spyker: they don’t just have to cover their production and marketing costs, they also need to generate money to invest in future product. Given NEVS’s technologically advanced business plan for Saab, this is absolutely crucial.
That means you have to develop a premium product and justify a premium price for it.
NEVS themselves have said that they’ll produce a premium electric vehicle eventually. They haven’t said much about the combustion-driven 9-3 they’d like to produce as a factory-filler aside from the fact that it would have a facelift of sorts. I can tell you, though, that it won’t be a budget model and that presents another problem…..
Model from 2002 ≠ Premium
Here’s where the Gordian knot starts to reveal itself.
NEVS’s quickest road to production is to do something with the Saab 9-3 IP that it owns. That’s a car that was launched late in 2002 as a 2003 model and whilst the Griffin version of it was still a very capable vehicle when Saab declared bankruptcy late in 2011, it had been overtaken by new generations of vehicles from brands that should be beneath Saab on the brand scale. The brands that should have been regarded as Saab’s natural competitors overtook the 9-3 a number of years before.
NEVS will need to tell a premium brand story right from the get-go and if they’re to do that with a combustion engined 9-3, then they’ll have to do a significant upgrade. This is going to be necessary because…..
Saab is not established in China
Saab has to build a brand story to tell in China. It’s true that they have an historical legacy to call on for the crafting of this tale, however they have near-zero brand recognition so they’re still working from next-to-nothing.
Hyundai took 20+ years to forge a reputation based on something other than price. Audi were nearly dead 30 years ago in the USA and it’s only been in the last 5 years that they’ve got on a par with their German counterparts (and that’s with the benefits of Germany’s reputation for quality and technology).
A clean slate can be a blessing in some respects but a burden in others. Saab’s efforts in China are going to be a long-term exercise, which means Saab fans might have to be patient and NEVS will need to have very deep pockets.
There’s nothing to suggest that Saab can’t gain a reputation relatively quickly in China but it’s going to take a superior product and a LOT of marketing.
While we’re talking about superior product…..
Don’t forget those import tariffs
NEVS’s main strategy focuses on China and they’ve indicated that they’ve already had strong interest in marketing Saab cars there, even the internal combustion versions of the 9-3. That’s all well and good, but it’s also another argument for Saab having to go the premium route.
A) They’ll be competing with other brands from Europe in the Chinese market so they’ll have to have their gameface on, and
B) The import tariffs they will face for bringing their Swedish-made internal combustion 9-3’s into China will only intensify the need for a premium car. Even their electric vehicles are going to face this to an uncertain degree. Saab has to justify the price they’re asking and the only way they’ll be able to do that in a sustainable way is to do what Spyker wanted to do – move Saab closer to the premium sector.
Because Saab will spend some considerable time establishing themselves in China, especially as a premium player……
They’ll need established markets
There are plenty of markets out there where Saab is a known quantity and in a reasonable number of them, Saab is remembered with no small amount of fondness. If Saab can do the right thing with the 9-3 and provide the upgrades needed to justify their place in the market, they have a ready-made toe-hold in some potentially lucrative markets around the world.
BUT……will they be able to sell the 9-3?
Model from 2002-2011 is not legal in 2013
The main reason Saab were pressing so hard for a new Phoenix-based 9-3 in the Spyker era was because the old 9-3 wouldn’t be legal for sale in Europe in 2013. The 9-3 doesn’t meet pedestrian safety standards that were due to come into force.
That means more $$$$ for NEVS if they want to take advantage of those familiar markets. They’re going to have to re-develop at least part of the 9-3 and have it crash tested once again in order to gain European certification for sale.
This process isn’t easy. Even the relatively simple task of re-releasing the 9-3 as an internal combustion car can be fraught with problems. They don’t even have an engine range announced yet and that’s one of the most mission-critical elements to get sorted.
Sick of listening to me talking about how this isn’t a finger-snap process? Listen to Johan de Nysschen, the global chief from Infiniti, talk about getting a four cylinder engine for the Q50. They’re sourcing this engine from Mercedes Benz rather than developing one in-house but because the Infiniti is a premium vehicle, they have to get it right:
Two four-cylinder engines, a petrol and diesel sourced from Mercedes-Benz, won’t arrive for “about two years” according to de Nysschen.
“Part of our history has been being very US-centric,” de Nysschen says. “It has not been considered important to have four-cylinder gasoline and diesel powertrains for that matter, which has been an inhibitor of our ability to grow in markets like China and Europe.”
“I imagine that with a powerful and efficient turbocharged four-cylinder, we could probably see the total sales mix exceeding 40 per cent – and all of that’s incremental to what we have today,” he says. “It’s part of the reason of why we’re so optimistic for the prospects of this car.
“We are in a co-operative alliance with [Mercedes-Benz parent company] Daimler, and we will be sourcing those engines from Daimler,” de Nysschen says.
“[The four-cylinder engines are] currently used in the C-Class, it’s a derivative of that engine. It just takes time to develop the engine and the car to work together,” he says.
“You know, you don’t just stick an engine into a car – there’s calibration that needs to be done, you need to set up the suspension tuning, there’s a homologation process to be done. This takes time.”
When asked why Infiniti didn’t instead opt for a Nissan-sourced engine to suit its needs, de Nysschen was frank.
“We’re in a hurry,” he says. “To develop, in-house, an engine with the turbocharge feature and the noise, vibration and harshness characteristics that we seek would just take longer.
Emphasis added for effect.
That’s a long read for what seems like a small point, but don’t let the importance of it pass you by: Infiniti are in a hurry and have to settle for a two year wait. NEVS want to start building IC Saab 9-3s within months.
Again, NEVS need to take Saab into premium territory for the company to survive, let alone prosper. Cars in that class have to have certain quality characteristics and those characteristics aren’t just bought off the shelf. They have to be tuned into the car. That’s going to take time and money if it’s to be done properly.
By the way, all of these issues have arisen without giving any consideration whatsoever to the obliterated dealer network around the world, or discussions as to whether electric vehicles are going to be enough to sustain a company. Those two issues could be a whole other post.
Whilst history is against NEVS being successful with Saab, it can be done. No-one had untied the Gordian knot until Alexander came along with his sword and cut to the heart of the matter.
In Saab’s case, Alexander’s sword is represented by money. If NEVS have enough of it and can either sustain losses or spend enough to ensure product and marketing success, then they’ll have a good chance at succeeding. They’ll need buckets of cash, though, as well as very good product and marketing plans.
As always, I’m keen to see how they do it. In the end, it’s all about the product. The market will see through marketing that doesn’t have a product of substance at its core. If NEVS can hit product targets – consistently – then you can’t ask much more than that.