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How GM stumbled at Saab


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How GM stumbled at Saab

Why couldn't biggest automaker help one of the smallest? Lessons abound for Euro brand owners

Richard Johnson

Automotive News -- November 29, 2010 - 12:01 am ET

Small, struggling, European premium-car companies that later became big and powerful -- like BMW and Audi -- did so because single-minded leaders put their careers on the line and stuck around to complete the job.

That theory -- the "great man theory" of automotive history -- holds that General Motors failed to turn Saab into a powerhouse over the past two decades because it didn't allow strong, independent leaders to thrive at its Swedish subsidiary. In some cases, managers sent to run Saab may have been good, and gutsy, but they got pulled back into GM's hierarchy at precisely the wrong times.

The cherry-picking of luxury brands by giant carmakers in the 1980s and 1990s mostly flopped. Now Round 2 is happening, with small players getting the chance. And as Geely takes over Volvo, Tata Motors tries to perk up Jaguar Land Rover and tiny Spyker Cars aims to revive Saab, there is plenty to learn.

Why couldn't the world's largest automaker help one of the world's smallest to succeed? The conventional wisdom is that U.S. executives in the 1990s didn't understand the brand, bungled the product strategy, allowed quality to slip and couldn't settle on a marketing plan.

But the blame went further, say several managers who toiled for Saab in the early years of GM ownership. Many of Saab's staunchest Swedish loyalists -- and GM critics -- actually praise two Americans who took turns as CEO in the 1990s, Dave Herman and Bob Hendry.

The problem, they say, was the way GM rotated executives, leaving the Swedish company with CEOs who could not be farsighted. Beyond that, Saab was forced to share parts and platforms with Opel. And GM was reluctant to fund the expensive task of building a prestige brand.

A foolproof plan?

Europe's independent luxury-car brands acquired a cool factor in the 1980s that lured young, affluent Americans away from Cadillac and Lincoln. So GM and Ford had a choice in 1989. They could spend billions to invent and build a prestige brand -- as Toyota was doing with Lexus -- or they could get hold of an import brand that already possessed style and decades of heritage.

The latter idea looked foolproof. In November of that year, Ford bought Jaguar, and six weeks later GM Europe President Bob Eaton sealed a deal to take 50 percent of Saab for $600 million.

Everyone wanted Jaguar, but settling for Saab seemed pretty good, too. From 1982 through 1986, Saab was the fastest-growing luxury brand in the U.S. market.

"Those were the glory days," says Steve Rossi, an American who helped build the prototype for the 900 convertible, which helped make Saab a household name in the United States.

But under GM, Saab's U.S. sales never returned to their 1986 peak, and until last year the company had not earned a profit since the 1990s. In February -- almost exactly 20 years after GM took over -- the company was sold to Spyker, a supercar maker in the Netherlands. GM had washed its hands of Saab.

Now Saab is in the hands of Spyker CEO Victor Muller, and Volvo and Jaguar Land Rover have new leaders, too. Former Volkswagen Group of America CEO Stefan Jacoby is running Volvo, and former GM Europe President (and ex-Saab Chairman) Carl-Peter Forster is in charge at Jaguar Land Rover.

The three men have a chance to make their marks on the luxury-car business. For role models, they might look to past leaders of other upscale European companies that succeeded against great odds: Eberhard von Kuenheim at BMW in the 1970s, Ferdinand Piech of Audi in the 1980s and Wendelin Wiedeking at Porsche in the 1990s.

Each found the resources to transform a weakling into a juggernaut. And each stayed put. Von Kuenheim ran BMW for 23 years; Piech was either Audi's all-powerful head of r&d or CEO for 18 years. Wiedeking led Porsche for 19 years.

"At Saab, one of the problems was continuous changing in leadership," says Jim Crumlish, the first GM executive to arrive in January 1990.

GM's strong start

Dave Herman, Saab’s first boss under GM, tried to protect the brand.

At the beginning, GM seemed to do everything right. It sent executives to Sweden who had absorbed Japanese production principles at GM's NUMMI and CAMI joint ventures and were able to fix Saab's wildly inefficient manufacturing almost overnight. It had teams of financial and organizational wizards who got Saab organized and plenty of people who could help with the brand's notably weak marketing.

Saab was reputed to be an engineering powerhouse, but the GM guys who arrived on the scene weren't so sure.

"Saab manufacturing was really in need of help, but so was marketing and so was engineering," says Crumlish, who moved from CAMI Automotive in Canada to become Saab's CFO. "There were some outstanding individual engineers, but as you got down into the organization, it was not exceptionally strong."

And GM didn't simply dispatch some U.S. zone manager to run things in Trollhattan. Herman was an American, but he had not worked in the United States since leaving GM's New York legal staff in 1975. And he never had worked in Detroit.

He had been posted in London, Eastern Europe, Russia, Belgium, Chile and Colombia. In 1989, he was in charge of GM's European parts operation in Ruesselsheim, Germany, when Eaton sent him to Saab.

Herman took some knocks after his first press conference in Sweden for fumbling a question about Saab's image. But he proved to be a reflective champion of the brand.

"Dave Herman was a philosopher with a great intellect, and he took a great deal of interest in Saab," says Peter Salzer, a Saab lifer so steeped in the brand's heritage that he was sent to the United States to instruct Saab's American employees.

Botching the 900

Once Herman was in place, he encountered huge operating problems.

"The daily absenteeism rate was 18 percent," Herman says. "Beautiful, healthy young people could get a doctor's certificate and then hop on their motorcycle with their gal and go off to a lake someplace."

He moved quickly, overhauling Saab's manufacturing operations, ending an odd team-building experiment at the Malmo, Sweden, plant.

"We had obvious financial problems, and GM could help us," says Bill Kelly, who took over as head of Saab U.S.A. in 1991. "I thought that this was going to work out very well."

The first priority was to replace the 15-year-old Saab 900.

"There was a lot of discussion of what the 900 should be," Crumlish says. "GM wanted some commonality with Opel products, and the Swedes fought for more brand differentiation."

Kelly says GM "started to put pressure on us to do badge engineering."

"I got the idea that they did not understand the brand," he says.

Kelly remembers launching the Opel Vectra-based 900, which debuted in the fall of 1993 -- and the trouble that followed.

"I had no idea the product was going to be that bad," says Kelly, now a Chrysler dealer in Moon Township, Pa. "I think the quality went backward, and that set the brand back."

The problem, he says, was the common components that GM insisted on using.

Olle Axelson, who was at Volvo at the time and later became Saab's top public affairs executive, says the 900's quality was terrible.

"There were so many problems -- so many problems," Axelson says. "They took materials off the shelf at Opel, and the car was a complete disaster. When it was very snowy, the snow would get packed under the rear fenders and the wheels didn't turn. That car was a big, big mistake that hurt Saab terribly."

Herman's struggle

Salzer says that the first 900 was "a rush job" but wasn't the only problem. The 9-5, which was to follow the poorly received 9000, kept getting delayed.

"It came out in 1997, but it took too long," Salzer says. "Saab didn't have that much capital."

It was a struggle for Herman, who retired from GM in 2002. Now 64 and living in London, he serves as a nonexecutive chairman of Finnish and Russian automotive companies.

Within GM, he says, "people were saying: Why can't you take this system or that system or a group of components from the existing parts bin and find a way to work that into the next product?

"In the process, there were pressures to find, not necessarily compromises, but ways and means that were not conducive to maintaining that independent brand. That was a problem."

Herman says Saab needed to guard the brand.

"If you look at the highly individualized patterns that the competitors go to market with, you would find very distinct notions of engineering and customers," he says. "Saab could only be successful if you invested in and developed that notion."

Ken Levy, a top GM Europe communications official in that era, says Eaton gave Herman his marching orders at Saab.

"Eaton's message to Dave was 'protect the brand.' Dave didn't want to make Saab something that was GM-ish, and he made a lot of progress. If he had stayed longer, things might have turned out different."

'Caught flat-footed'

When Eaton went to Chrysler in 1992 as CEO Lee Iacocca's successor-in-waiting, Levy says, Saab lost its protector. And the musical chairs at GM Europe caused Herman to rotate back to Germany to head Opel.

When Eaton left, Levy says, the view of Saab changed at GM. It was a subtle difference.

"They no longer had the big protection," Levy says.

Rossi says Saab was "caught flat-footed."

"Eaton had been the champion," he says.

Herman spotted another problem. At GM, senior executives shifted from job to job too quickly. At most GM units, that may be OK, but it didn't work for Saab, with its distinct culture and special needs.

"How can you send somebody someplace for two years?" Herman asks today. "During my whole career, GM had a system in which you almost could say that the frequency with which a person moved was a better sign of success than what he actually achieved.

"You had all these guys going over the world. You had this huge repository of people being shifted over time and space with families and costs for relatively short-term assignments.

"I never understood why that is supposed to work, and by that I am saying that I don't think it does."

Given more time, could Herman have succeeded at Saab?

"I would have fought hard for the resources to make it happen," he says, "the way I think Bob Eaton and I wanted it to happen."

GM ups its stake

Bob Hendry saw in Saab the potential to be like BMW. Sales during his watch topped 130,000. Then GM transferred him.

Five CEOs led Saab during its GM years. After Herman came Keith Butler-Wheelhouse, then Hendry in 1996 and Swedish executive Peter Augustsson in 2000. Augustsson left in 2005 and was replaced by Jan Ake Jonsson, who remains CEO.

Hendry, a protege of former GM CEO Jack Smith, had held the top manufacturing post at GM Europe. He was using lessons learned working with Smith at NUMMI.

Once in Trollhattan, Hendry immersed himself in the Saab brand, spending his first two weeks driving every car in the Saab museum. He quickly decided that Saab needed an image upgrade.

"I felt the brand had the same kind of potential as BMW," Hendry says. "There was no reason Saab could not have the same level of profit and brand loyalty. The powertrain heritage and the thoughts about the chassis -- those were premium ideas."

But Saab's quirky image had to go, he says: "No customer likes to think of himself as quirky."

Axelson, who went to Volvo in 2000 as head of public affairs, called Hendry "absolutely the best CEO of a car company I've ever met. He got the team together; he got sales up."

When Hendry arrived, Saab's sales were under 90,000 cars worldwide, down from a high of 134,000 in 1987. By the time he left in 2000, global sales had grown to 133,000.

"It was an exciting time," Hendry says. "We turned the corner and made a small profit for the first time."

Things were going so well that GM acquired the remaining Saab shares from the Wallenberg industrial group in 2000 for $125 million.

But like Herman before him, Hendry was summoned to the top job at Opel.

"Jack Smith called him one day," Axelson recalls, "and Bob told me, 'Jack wants me to go to Opel.' So Bob didn't feel he was able to finish with Saab."

Hendry, now 66, retired from General Motors in 2002. Today he says: "It is tough for a small company inside a big company. You have to give it the attention it needs to grow and thrive. It requires a whole different mind-set."

While Hendry was running Saab, he says, Smith and former GM Chairman John Smale "hovered over and protected" the Swedish company. But in later years, as GM began to struggle, Saab had to fend more for itself. And when large companies run into trouble, it is troubleshooting executives such as Herman and Hendry that get shifted around.

"The bigger operations become the priority," Hendry says. "That is a big issue, no question about it. We used to debate that in the company."

Small companies benefit from strong leaders who don't leave. Hendry says Porsche in the 1990s was an example: Wiedeking "was a great executive. Just look what he did with that brand."

GM loses patience

By 2002, Saab was in deep trouble, losing a half-billion dollars that year. GM's top executives began to lose patience with Saab's years of drift and launched an emergency turnaround plan. GM CEO Rick Wagoner declared that GM had "overtrained on brand purity" at its Swedish subsidiary. Saab's product development operations were merged with Opel's in Ruesselsheim.

Saab's loss of momentum offers an important lesson, Hendry says. In the early to mid-2000s, he says, there were confusing signs from GM management.

"They were asking questions instead of cheering them on," Hendry says. "Lack of nurturing is another way to put it."

GM was unwilling to pay the price of building a premium brand, Herman says. "The question is, how much does it cost to develop a premium or luxury brand and are you willing to accept?" he says. "The answer is that it costs an incredible amount.

"I know two examples where it has been done successfully and a lot where it hasn't. The best example in recent years is Cadillac re-creating itself. The other is Audi."

To revive Cadillac, GM spent $4 billion in the late 1990s for a new vehicle architecture, the development of new vehicles, a new plant, subsidies for new dealerships and an overseas sales push.

Herman relates a story about Piech, who after being ejected from his family's Porsche sports car business in 1972 built Volkswagen's tired Audi unit into a front-line luxury player. To Herman, the story shows the degree of commitment that is needed.

"A friend of mine told me about having dinner with Piech, who told him that he had connived, cajoled and somehow found the money in the mid-'80s to re-create Audi because he knew that no one would have given him the amount of money he would need -- because you would have to flatten it out for 25 years before you'd ever make a decent return on your investment."

Herman says: "That kind of thing, viewed from today, is never going to happen."


The executives who ran Saab under General Motors

David Herman: 1990-92

Keith Butler-Wheelhouse: 1992-96

Bob Hendry: 1996-2000

Peter Augustsson: 2000-05

Jan Ake Jonsson: 2005-present

Read more: http://www.autonews.com/apps/pbcs.dll/article?AID=/20101129/OEM01/311299980/1424#ixzz16h5P7OaA

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