Saab Sees Riches in Chinese Market, But Still Calls U.S. Most Important

BIRMINGHAM, MI – Newly reorganized Saab Automobile AB intends to enter the booming Chinese market Oct. 1 with a soon-to-be-named distribution partner and an eye on growing sales to at least 5,000 units annually within three years.

“And if it all went well, maybe close to 10,000 with our current product range,” says Adrian Hallmark, executive director-sales.

China represents just one of several new markets Saab plans to enter near-term.

The auto maker, purchased earlier this year from General Motors Co. by Netherlands-based niche-vehicle maker Spyker Car N.V. in deal valued at $400 million, also wants to restart operations in Canada and Japan and launch sales in Australia, Russia, Brazil and perhaps India in the coming months.

But China, where first-quarter sales totaled 4.61 million units, nearly twice the U.S. volume, easily carries the most potential.

Creating brand awareness will be Saab’s greatest challenge, Hallmark admits. GM put a tiny distribution network together before bankruptcy compelled it to divest Saab, but almost no cars were sold.

However, other brands have demonstrated that a reputation can be built quickly, Hallmark says.

“Even if you’ve got low brand awareness and you start from scratch, if you have a clear product positioning, clear brand positioning, and you attack the key markets – there are only 30 of them that cover 70% of the premium segments – we can do this,” he tells Ward’s.

Saab sales chief Adrian Hallmark bringing Asia expertise to rejuvenated auto maker.

Hallmark knows the situation in China firsthand. Before joining Saab in March, he worked as executive director-Asia at Volkswagen AG and also oversaw the introduction of Bentley Motor Cars Ltd. in the region.

Volkswagen, he claims, has very little brand awareness in China. It sold 970,000 cars and trucks in the region last year by linking with local companies Shanghai Automotive Industry Corp. and FAW Group Corp., but sold another 13,000 without their support.

“If Volkswagen can do 13,000 import cars with virtually no brand awareness and no benefit from being linked to FAW, or SAIC, anybody can enter the market,” he says.

Meanwhile, Bentley simply came to China with the most expensive vehicle available – higher than even a Rolls Royce.

“They don’t know which, Bentley or Rolls Royce, are above each other, so we’ll make it above,” he recalls. “We’ll make a million-dollar car.

“So we got the car in position, dropped it and it’s worked from there. And the company, from zero, will do 10% of its global volume there after five or six years,” he says.

Saab also has product uniquely appealing to Chinese consumers, Hallmark adds.

Saabs are premium cars, he says, popular with wealthier buyers, with the 9-5 perfectly sized for the big-car tastes of Chinese consumers.

In terms of size, the 5-passenger 9-4X due next year is “the perfect crossover SUV,” he claims. And all the auto maker’s engines slip neatly under the 3.0L threshold for China’s costly engine displacement tax.

2005 Aero X concept car to figure prominently into new 9-3 sports sedan.

“So for us, either by design or serendipity, we are well-positioned in terms of the footprint of the vehicle and the drive trains that we’ve got planned,” Hallmark says.

“They are perfect for China. And with my little bit of experience there and passion for the market, it’s just a question of being hyper-aggressive, hyper-prioritized in terms of where you go,” he adds. “Don’t get distracted, find the right partners, get the back office support and go.”

Despite its emerging-markets ambitions, Saab also confirms a commitment to the U.S. The region remains Saab’s most important market globally and Hallmark believes if the auto maker can gain back as little 3% of the customers that have bolted to other brands in recent years, it can be profitable.

About 1.5 million people in the U.S. own a Saab and more than 4.5 million have had one in their garage, the auto maker estimates.

Discounting, however, will not be part of the plan. Instead, Saab intends to increase prices to reclaim consumers who outgrew the brand’s offerings.

“We had cars that were very affordable, and we had to discount them to keep the volume going,” Hallmark says, recalling $199-a-month leases on 9-3s.

“Actually, the market has moved up. And if you look at BMW, Audi and Mercedes, they’re business is growing. Lexus is growing. They aren’t cheap. They’re more expensive, so the growth has been above us,” he says.

“So by moving the product and the pricing together, we can actively participate in that marketplace again.”

Ward’s data confirms growth in the luxury segment, moving from 7.6% of the market in 2005 to 7.8% in 2008. But the recession halted that momentum, with only the Upper Luxury segment gaining from 0.37% of the market in 2009 to 0.44 % so far in 2010.

Jan Ake Jonsson, who heads the auto maker from Trollhattan, says Saab continues to burn through cash and use European Investment Bank loans to support its business.

However, he expects the company to reach breakeven by late 2011 and achieve profitability in 2012. The auto maker ultimately will be able to make money on a volume of 80,000-85,000 vehicles annually, down from 100,000 today, he says.

Jonsson forecasts production of 50,000 cars in Trollhattan in 2010 and 100,000 in 2011. After a 7-week shutdown earlier this year as GM put Saab through reorganization, just 6,000 units are available for sale worldwide. Normally, an inventory of 20,000 cars would be on the ground.

“Everything we build is sold to a customer,” Jonsson says, noting production will reach 28 cars per day by June 1. “We’re back in the swing. We are building cars again, but it was a tough starting point.”

Jonsson also wants to add 350 salaried and hourly employees this year to the auto maker’s worldwide work force of 3,500.

While Saab launches the pivotal 9-5 in coming weeks – the first redesigned large sedan from the auto maker in 13 years – and the 9-4X comes next year, a bread-and-butter 9-3 midsize sport sedan due in 2012 likely will determine its fate.

Jonsson promises “a more daring, more provocative” 9-3, a sedan with completely new dimensions and a design inspired by Saab’s aircraft-making heritage and 2005 Aero X concept car.

Saab is deep into the development of the new model, but Jonsson says it has not reached design freeze yet because it needs to be “more Saab-ish.”

Jonsson also admits Spyker founder and CEO Victor Muller is pressing the auto maker to move quickly on an all-new small car beneath the 9-3, but has not funded it yet.

“We have a long wish list of stuff we would like to do” he says. “At the top of the list is a small car, (and) my boss is putting a lot of pressure on me to find room for it in the business plan. I’m the first to say it would be a tremendous entry for Saab.

“We’re not there yet, but it is at the top of our list.”

Jonsson also reveals discussions are under way about supplying Saab technology and components to other auto makers, while Saab is interested in acquiring alternative-propulsion technology from auto makers other than GM.

[email protected]