Reviving Saab: An uphill battle

By Alex Taylor III, senior editor

FORTUNE -- The latest chapter in the all-but-quixotic effort to revive Saab cars by its new owners played out this week with the media launch of the Saab 9-5 Aero.

That Saab has survived at all while other, better known GM brands -- Hummer, Pontiac, and Saturn -- collapsed during the GM bankruptcy is a testimony to either dumb luck or sheer stubbornness.

Now the automaker faces the equally daunting task of reestablishing itself as a legitimate competitor in the luxury space after halting production and advertising for months -- and thus nearly vanishing from the consciousness of potential customers.

Saab has survived since 1937, but the last 18 months have been the most tumultuous in its history. After several potential deals to sell Saab last year fell through, GM announced it would wind down the brand starting January 7, 2010.

The process of closing the company had already begun when Dutch entrepreneur Victor Muller appeared. The energetic Muller had founded Spyker Cars, a maker of hand-built sports cars, and he appeared hungry for a new challenge. After rounding up nearly $1 billion in capital, including a $550 loan from the Swedish government, he bought Saab from GM on February 23rd.

The company was all but dead in the water. Production of Saab cars had already been halted for seven weeks as liquidation began, and Muller's company needed another seven weeks to stock enough parts to restart its factory in Trollhattan, Sweden.

Without any production, Saab dealers ran out of cars, and sales cratered. Customers in the U.S., Saab's biggest market, bought only 303 cars in June, and Saab sales for the first six months have fallen 75%.

To restart the company, Muller and team are draining the product pipeline left over from GM's ownership. After the 9-5, which hadn't been replaced for 12 years, comes the 9-4x crossover vehicle in 2011 and a new 9-3, the Saab mainstay, is due in 2012.

Muller expects production to grow as new models are introduced. From a low of 29,000 last year, he plans to build 39,000 cars this year, 100,000 in 2011, and reach 125,000 in 2012, by which time he declares Saab will be profitable.

Muller believes there are a huge group of Saab loyalists -- 4.5 million former owners -- who have been denied the opportunity to buy a new Saab because GM was so desultory about renewing the model lineup.

"People will buy the same car twice," he said during an interview in New York City, "but not three or four times. That's too much."

Accordingly, he thinks the main appeal of his new cars will be their adherence to traditional Saab values: safety, environmental consciousness, and turbocharging.

Loyalists would add quirkier characteristics such as aircraft-like design, unique features like the black-out dashboard and tunnel-mounted ignition key, and a certain intangible "Swedishness."

That may be a hard sell for the 9-4X, which will built alongside GM's Cadillac SRX at a plant in Mexico.

So Muller is at pains to point out that while the 9-5 is based on the GM Opel Insignia, "70% of the parts" are Saab-inspired. He is also recalling all Saab car production to its home base in Trolhattan.

While building cars in Sweden will certainly strengthen Saab's brand DNA, it could prove dangerous in the long run. If Geely, Volvo's new owner, decides to move production to China, Sweden's supply base would shrivel. That would create hardship for Saab.

Muller is playing the hand that GM dealt him, but the 9-5 launches into one of the industry's toughest segments, dominated by the BMW 5-series and Audi's A6. What's more, many have consigned Saab to the status of a sub-luxury brand, suggesting it doesn't have enough prestige to go up against the German producers.

To make things worse, Saab doesn't have a strong presence in China, currently the world's hottest market for luxury cars. It is phasing out GM distribution and hasn't fully replaced it yet.

Reviving faded brands is a tricky business. BMW succeeded with Mini but failed with Rover. But Muller has a plan. Now he has to find all those former Saab loyalists, and convince that it is time to return to the brand -- despite the heritage of its near-term product line. To top of page