Saab’s Gordian Knot

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.

GordianThe 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.

——

Exhausted yet?

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.

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34 Comments

  1. Interesting read. I find it that the things that have been discussed at Saab forums the last years have almost never been these important things that are the real challenges for the new Saab.

    I would like to add that since NEVS really want to be all about electric cars (if they can from the start is another question), there may be a possibility to do things in a different way. This is due to the fact the prospective customers may have another view on cars as a transportation and/or that they are more likely to try a new idea or mindset. One thing I have in mind is this project that I think started at Saab in 2011 (Swade may know more about that) and that was about engineering cars out of more “standardized building-blocks” (like Scania) instead of almost inventing the wheel for every new model. In the end that should lower the development costs. Maybe there will be an acceptance for a car with safety and handling that otherwise is “good enough” and not necessarily need over/redesigned ACC controls or headlights or door panels every 5 years.

    1. That project you speak of is a so-called modular or scalable vehicle architecture, but that was hardly a Saab invention or a new idea (indeed, like you say, they got the idea from Scania). Many large conglomerates in the auto industry use modular platforms these days (Volkswagen and PSA are good examples), and smaller manufacturers are also adopting that approach (my current employer Volvo is one of them). It makes sense of course because of the overall lower costs in the long run, although it does require significant investments in the initial phase.

      1. Well, a modular aproach is not quite the same thing as a scalable platform. A modular aproach intends to allow replacing separate modules without affecting other modules, i.e. you can both mix and match, and you have improved compatibility between different generations of components. The key is clean and cleverly defined interfaces between different modules. GM did have, to some extent, scalable platforms but poor modularity. As Scania is the king in this respect, I expect hiring expertise previously from Scania gave Saab an edge.

  2. Tell it like it is.
    Don’t shy away from that Swade.
    As I drive my 2004 9-3 Hirsch down to the shops, or even the bay to go sailing, I mull over the illogical situation that potentially sees a 10 year old design relaunched in the future for the brand.
    It just doesn’t seem to make sense. I am starting to bond with my car, and it has many redeeming features. But it certainly will not stand up to a 2013 iteration from the Germans. The underlying fundamental chassis is not up to delivering 200kW from a high boost conventional petrol turbo engine. It does some wierd stuff for sure. You can’t fix that sort of thing if the chassis is flawed from day one. Tinker around the edges and compromise ride quality to get it to corner at speed, but it will always be a compromise.
    Start fresh with a new chassis, please. After a quick drive any new customer will evaluate though the seat of their pants how the GM chassis is simply not up to the job in 2013.
    Then they will walk down the road and buy the Volvo offering. New car. Looks new. Drives new.
    Just my two cents on the matter.

    1. I would be very surprised if NEVS was working on a 200KW car based on the current platform. You may need to wait for the Spyker/Youngman/Phoenix project to bear fruit.

      The bulk of the Chinese C segment premium class sales (A4, 3 Series, C Klasse) seem to be in the same 150KW range as the old 9-3.

  3. As always Swade, a clear, well written article that, while cutting to the chase, still reminds us that you along with thousands of others, want to see this ‘new’ Saab succeed.
    It is because balanced articles (IMHO) like this are written here that I no longer find myself capable of contributing to other sites.
    It also shows, again IMHO, that just because you might question how something is to be achieved, doesn’t mean you area a naysayer or dooms monger full of negativity and doubt.
    I, like you and thousands of others, hope Saab return and I will watch with interest to see how it is achieved. But by God, it is going to mighty difficult.

    1. Marius, excellent point! I have a few SAAB friends that get all their information from another site and hold everything written there to be how things will actually play out. I always tell them to wait and get a more objective and in depth read here.

      When I hear what is being written elsewhere on this topic, it seldom makes business sense to me and quite frankly a lot of the business side of the auto industry is complex and over my head. Swade does a wonderful job of breaking things down to the core and explaining how this complex auto industry really works.

  4. I think that NEVS business plan is strongly based on coverment/local authorities sales in China and there is strong indication for that direction their latest deal in China. Other sales and markets are as compliment for their business, but at least at first cash flow will come from China. My guess only, but there is strong indications for that direction. I think that they need to have some plan/confirmed volumes, They could not be so stupid that they invest big money and try to sell 10 year old car or EV based on 10y old design and building up retail network and hope that there will be some consumers for their products.

    1. No-one’s suggesting they’re stupid, Pekko, but sooner or later you’ve got to sell some cars to people (not just your government partner). Right now, neither the channel for those sales, or even the product they’ll actually sell, are particularly clear.

      This article is simply pointing out that that path is a tricky one; nowhere near as simple as what some are making it out to be.

      1. There are, as we see, strong indications that they intend to start the line in late summer to produce some 9-3’s. But where will these cars go? Have NEVS negotiated with any sales channels yet (ANA?), or will the cars go to China without NEVS even trying to sell them in Sweden, or Europe? Questions, questions…

        1. It seems to me that the biggest question, also highlighted by Steve’s little Infiniti parable above, is how NEVS is going to replace the engine in the 9-3 within six months. And even if they would manage that, what kind of product would they end up with?

          1. Yes, the restart seems strangely close. Can they find a new engine that quick, or have they managed to find a way to use the GM engines? Questions, questions…

      2. It sounds as though they have some very strong relationships in china though. They could potentially sell all their cars this way for the first couple of years and that would give them cash flow and time to develop a new car based on the Phoenix platform. I bet we don’t see the cars anywhere else.

        1. I think NEVS does have one ace up their sleeve with their (mother company’s) battery factory. I think this is a central component of the NEVS business case. I interpreted what Mats said at the Octoberfest was basically that selling electrical cars in China should be about enough for profitability (but he did not say that was the entire business plan, either).

          There is also a case to be made for electrical premium cars, a markup in percent gives better margins on electrical cars.

          For this reason, I think that it may be acceptable for NEVS to sell the 2012 version of the 9-3 in China only, if needed. That said, modifying and requalifying the 9-3 can be done more than one way.

          I guess the engine question is still very open. I really wonder to what extent GM/Opel will say “no” to NEVS money?

      3. I totally agree that there is too high hill to climb if they are planning to sell NG9-3 with traditional or electric drive to traditional Saab markets considering also that there is no dealers at all currelty. That is the reason why I think that there should be some new approach which I guess is coverment sales in China. That ensures some cash flow when building traditional markets and developing new cars. Other thing which I wonder is that they have basicly no engineers to develop cars, they have hired maybe some key positions and use some consult agencies but engineering a car needs a plenty of engineers. most probably there is no progress at all with phoenix currently.

        If I remember right our friend James Cain have stated around december 2011 that there is no problem for GM to supply parts and drive line for NG9-3. Problem was only NG9-5 and 9-4x licences. I have tried to find that quote from internet without success.

  5. Totally agree with you, Swade. I think Saab needs to be premium (also according to your arguments) and is also very suited to be a premium brand, it really belongs in the neigbourhood of premium cars.
    I hope Saab will be able to sell the first (traditionally fuelled) Saabs in Europe (and the USA) again too, bringing the 9-3 up to the safety standards required since this year.

    One question, where did you find the information about this, regarding the internal combustion versions of the 9-3:
    “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.”

    I’ve read that NEVS is interested in producing the current 9-3 again, and also on focusing on sales in China in general, but I haven’t heard them stating specifically that they are interested in selling the current 9-3 in China as well.

    Saab as a Swedish premium brand with interesting products and sales all over the world sounds good to me.

    1. I can’t dig out chapter and verse for you, Ward, but it has been mentioned that one of the reasons they’d like to build the 9-3, apart from using the factory to generate some cashflow, is because of demand they’ve received. Much of that has apparently been from China, but there’s no specific numbers mentioned in terms of sales.

      The only numbers mentioned has been the production they’d like to achieve – I believe it’s 8K this year, 60K next year and 120K the year after (some of those numbers include their electric vehicle, too).

      1. Thanks Swade. Maybe this would be a good article for SaabsUnited as well. In the disccusions, I’ve read some suggestions for spreading the range to the middle segment and to the higher parts near the premium segment. According to the suggestions and to my own opinion as well, the premium product with good quality and attractive design will always be central, also when spreading the range to reach multiple levels of the market. This sounds interesting to me.
        Your post is very helpfull to get some more insight into the challenges Saab faces and the solutions that are important for Saab to be succesful.

  6. The sobering fact is that the German 3 are all individually 1 million unit plus producers, and audi beyond that, is part of an 8 million unit conglomerate.

    The value of the Brand strength of those companies put in financial terms is in the multi billions.

    Even Volvo at 400000 units realizes that it either has to double in size, or it will get eventually swamped. They face their own Gordon knot.

    Saabs ‘last known’ position in the marketplace is now no mans land: premium ish, that there is a limit to the units you can sell, but not premium enough to command a price enough to make a profit.

    It seems to me that tesla is who they should emulate , but again…back to the Gordian knot: No one will buy a $ 70000 (in us market terms) Saab.

  7. I’m not convinced that anybody in the know expects NEVS’s task to be easy, and that includes NEVS themselves.

    That’s what makes this story so compelling. It’s a monumental task, and no one outside of a small inner circle knows how it will get accomplished. We get occasional glimpse, like we did last week when NEVS announced a huge partnership with a Chinese regional government. I wouldn’t be surprised if this was only one of many deals to come, but I have no more insight than anyone else (and less than many).

    I’m definitely watching this movie to the end.

  8. I found NEVS ‘new’ Saab logo kind of boring. Perhaps NEVS wants to sell pre faded emblems so you don’t have to watch the colour slowly leach out?

  9. The question is how much work was already done with the BMW and Fiat engines in the test mules that Muller was working on. They might be able to make use of that data to get those engines in pretty quick if BMW and Fiat agree to sell to them. That might take 12 months off the testing schedule (which leads to a different issue, can they sell these cars and NOT let their customers do the testing, unlike the first 95’s.

    Personally, although I’d love to see them succeed, Their biggest problem is that everyone will say this is a 2002 car even if its not (i.e. substantial upgrades. If you look at VW their new Golf is riding a new chassis for the first time since 2002 so its not like you can’t improve a product and call it all new and yet still use an old chassis).

    1. I thought the BMW engines, though, were targeted to the new PhoeniX based 9-3 replacement. Were they actually tested in the existing 9-3 platform?

      1. Not to my knowledge. They weren’t intended for the Epsilon platform at all so testing them in it would not have made sense. You’d only have to re-tune the setup once you got it into the Phoenix car.

        There were a small number of Phoenix cars doing testing with both the BMW engine and a smaller number still with eAAM’s setup. I was at eAAM visiting Peter Johansson the day they were removing their electronic equipment from the cars (three of them, IIRC, maybe four) before the bankruptcy people swooped in. It was quite amazing as they stripped the gear out of one car while we were standing there talking – it took no time at all despite looking like a lot of gear.

  10. Well said Swade, left my brain in a bit of a knot actually.

    Add to all that, there are many, many current fans who wouldn’t consider buying a Saab at a premium price, even if for the first time in many years they really can provide a premium car to go with the price-tag.
    So regardless of whatever lip-service is given a lot of die-hards will not be a real commercial part of Saab’s future.

  11. FYI SAAB did test the BMW engine in the 9-3, saw one myself. Not sure how far that went, neither if the testing was done with the 9-3 in mind.

    As for the piece, I agree with every point you made, Swade, but for one perhaps. They may not need to make huge profits to re-invest into new product develoPment if they can get to that investment money from a separate source.
    Not sure how deep their pockets are or how vast their contacts go, but there are many deep pockets in China.

    But it is indeed one tough road ahead and success is all but guaranteed.

    2T

    1. I think you have nailed it on that point 2T. I suspect too that the money would be coming from China for quite some time, for years and years.
      The cars themselves may never make a profit in the Western market. (ironic parallel to the GM years actually, with money coming in from abroad).

      NEVS building petrol cars to get things going makes some sense in a practical way for supply and operations but it is hard to see a customer in a showroom walking around a 10 year old design coughing up his hard-earned in 2013. There needs to be a really solid ‘point of difference’ to sell the car on. Now if it had a petrol-electric drivetrain THEN the design-age limitations become largely irrelevant. You could argue it would be nostalgic in a reborn sort of way.
      The hybrid Camry in Australia has now become one of the largest volume sellers in recent weeks, now displacing the GM and Ford offerings. They are everywhere on the roads. Guess what the adverts say? Petrol with extra power from the e-drive. Clever marketing. Not the best looking thing out there, for sure but I has a really strong marketing lever to work with.
      Wasn’t there a link mentioned a while back regarding the Toyota hybrid drivetrain?

  12. VW have spent £50 billion on developing a new chassis. If that is what it costs to develop a new premium chassis, it will cost Saab just as much to compete.

    If a chassis lasts 10 years, then that’s £5 billion per year to add as an overhead. If Saab only sell 200,000 cars per year, that’s £25,000 per car before you start to make it, market it, and make a profit.

    I don’t think there’s a market for 200,000 Saab 9-3’s in the £50,000 plus sector. Figures don’t add up….

    1. VW have ‘moved on’ from developing just a chassis, or to name it more accurately, a platform. What they now have is a 2 sets of modular architectures, one for transverse engines, one for longitudinal engines. Each modular set can build any size of vehicle from it, and while it may have cost $50 billion, If that is correct, it can be amortized over every product VW makes, going forward – eg, 8-9 million units a year.

      It also conveniently gets away from the old ” oh it’s a golf with different clothes” or in saabs case, ” it’s a warmed over Vauxhall cavalier”.

      It is very, very clever, and will make it even harder for smaller manufacturers to have a hope in hell in keeping up.

  13. Interesting read as per.

    Here’s an idea:

    The Sword of Damocles is hanging over this whole venture , right? Agreed.

    So why not use that sword to cut the Gordian Knot and … hey presto!

    Problem solved.

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