When Saab’s North American sales for November were reported last week, a discussion ensued in comments that became one of the longest threads Saabs United has ever seen outside of the time when Saab were being threatened with closure.
Emotions were expressed. A lot of opinions were shared. People contributed great suggestions and ideas as to how Saab dealers in North America can reconnect with potential buyers.
I sat out of the discussion but watched with interest. I think a lot of people had very valid ideas and I really hope that some people with decision making powers were watching as the discussion developed. I know a lot of other stakeholders were watching.
After a lot of consideration, and a fair bit of consultation, I’d like to add my two cents to the discussion.
Warning – this is another long one.
Saab were sold to Spyker in February 2010. The sale set in motion a protracted process whereby Saab would have to separate their operations from those of General Motors. These included virtual separations by way of IT and customer support systems, as well as a physical separation to a separate location for their US offices.
Low sales were initially blamed on low stocks. It took a while for Saab to deliver vehicles to the United States and it was expected that once stocks improved, sales would follow.
That hasn’t happened.
Whilst Saab sales in the US did spike in a statistical sense back in September, with 1,127 vehicles sold, numbers have decreased in the months following and there were only 397 Saabs sold in the US in November.
Saab are struggling in the US. Dealers are struggling and a small number have either closed their doors or declined to continue their relationship with Saab.
In this post, I’d like to analyse the US situation a little more and address some of what I see as being the core problems faced there.
I’d like to begin by noting something that I think we should all acknowledge – we are all coming from a point where we have incomplete and imperfect information. I don’t know the exact processes that Saab have to go through to achieve something, nor do I know what budgets they have for various programs.
I’m probably going to step on some toes in this article, but the ideas expressed herein are offered with the best of intentions for the Saab company. Whilst I have decent background knowledge and good contacts after covering this stuff for almost six years, I freely acknowledge that some of my points will be flawed due to imperfect information.
Some of the points that follow are general in nature. Some of them are directed at the US market in particular.
Some people have suggested that Saab should be pitching themselves below BMW, Audi and other European marques. They say Saab should be placed just above the better competitors from Asia, as an upmarket alternative to Toyota, Honda (Acura) or Subaru.
I disagree with this, and what’s more, I don’t think Saab can possibly afford to price themselves or play in that segment of the market.
My own disagreement is based on the notion that Saab have always placed themselves in the company of their European compatriots. For decades, they more than held their own in that company, too. Some will argue that they have slipped and the market definitely seems to indicate this, but I’d like to offer an alternative argument.
I think Saab should do everything it can to retain the ground that it’s claimed over 60+ years. They have built up a premium nameplate, a premium culture and they are fast on their way to a truly premium vehicle range once again.
If you give up that ground now in terms of your own corporate culture and customer expectations, you’re not likely to get it back for well over 10 years. Saab have to hold on to this ground.
A lot of US consumers (not necessarily they type that hang out here) expect a throwaway car at a throwaway price. Saab are better than that. Their designs stand the test of time and their build quality, which suffered in the early parts of this decade, is now back on par or above the industry standard. Whilst a lot of manufacturers build with good safety in mind, Saab still have a marketable edge in real-life safety and their record in real-life data supports this.
Saab have to regain people’s awareness and trust, but they have a rightful place above what many consumers see as their competition.
What’s more, Saab have a business plan that relies on them breaking even at around 85,000 vehicles and then doing good, profitable business at 120,000 vehicles a year. The aforementioned Asian nameplates have a business case that relies on them selling low but making their profits based on high volume. At 120,000 vehicles a year, Saab is not going to survive on that sort of strategy.
Saab have an excellent, brand new vehicle in the 9-5. They have what looks to be an excellent offering in the Saab 9-4x, coming very soon. They have an older, but still enjoyable midsize vehicle in the 9-3 with three body styles (or four, depending on how you view the 9-3x), including a class-equalling convertible. These are not Toyota-grade products in terms of accommodation or drive experience.
One of the factors that puts Saab’s claim to premium status to the sword is the high level of incentives offered to sell them. I write about offers being made because I’d like people to be able to take advantage of them, but I absolutely hate having to do so.
Incentives train the customer to wait for the next deal. They are an act of desperation and can be read as a tacit admission that a car isn’t up to standard. They kill residual values, as well as the value of CPO stock. Incentives are a friend to the customer but a poisoned proposition for the company and the dealer. They’re lazy.
The kinds of deep incentives that are available in the US at the moment run totally contrary to the notion of running a premium brand. They are a band-aid solution to a problem that needs radical surgery – the beancounter mindset.
I can barely believe it myself, but I’m going to quote Bob Lutz on this one. Back at the LA Auto Show, Lutz did a session on Autoline Detroit (who were broadcasting live from LA). He actually appeared directly before Victor Muller.
In his session, Lutz talked about how car companies need to take on less MBA students when recruiting and he spoke specifically about incentives (click that link and then click directly around the 60 minute mark)….
“…. through the whole MBA short-term-profit-maximisation model, managers are interchangeable, you can reduce any business down to a set of numerical data. Anything can be quantified. You then work around that quantification, optimise your various business elements and you’re going to come out with a good result. [However] The [real] answer is “No you’re not”.
Because what the American public forgot in all this is the need, above all, to provide a superior product or service. If you provide a superior product or service you’re going to be successful and if you don’t, you aren’t.
…..What I had to beat down was that MBA, show-me-the-numbers [mentality]. What I keep having to explain is that the auto industry exists in two [worlds] at the same time. There’s the analytical world, one that exists three or four years before the car is launched. You outline all the costs, you’ve got all the volumes, you’ve got the presumed price point… and the car lives in that analytical atmosphere, which is updated all the time.
You’ve got your price point fixed and your volume fixed, so if you work on the costs then your margin gets bigger and bigger. The volume never changes [in the modeling] so there’s a huge temptation on the part of the finance people to keep the product teams driving the cost down because analytically, the profit gets bigger and bigger.
Three years later comes the real world. The car is inadequate, it’s got poor NVH, it’s got poor ride and handling because everything was done on the cheap. It sells only with three or four thousand dollar incentives and now, all of those planned margins fail to materialise.
It took me a long time to get the finance people to recognise that this analytical world is connected to the real world. It just comes three years later.
I found this out when I said to one of them “If I put a thousand dollars into the car (in terms of improving it) and we can reduce the average incentive from four thousand dollars to two thousand dollars, then explain to me why we aren’t a thousand dollars better off.”
She said “You can’t look at it that way.”
I said “Why not?”
She said “Because you don’t know what the incentives are going to be and all we can book is the thousand dollar cost increase which reduces our future profitability”
It’s really bizarre. These people live in a weird world and until you understand that, you don’t really grasp the behaviour of a car company.
This is something that I believe is fundamental to Saab’s experience with GM, and fundamental to what Saab is currently going through now with a group of decision makers still working in accordance with their GM-learned habits.
There is a huge reliance on incentives to draw in the US customer and I personally think it comes down to two things – a lack of awareness about Saab on the public’s part, and a reluctance by somebody to equip the car in such a manner as to make the MSRP compelling.
My counter argument to incentives is that the company should offer cars equipped in such a way that they go a long way to selling themselves.
MY2010 vehicles are currently incentivised at around $7,000 off in a mix of customer, dealer and loyalty cash. If there’s $7,000 leeway there for various parties then there has to be some space for equipping the cars better.
Equipping the cars better would improve what is already a good picture for Saab in terms of standard equipment. This could actually become a compelling USP for Saab – genuine superior levels of standard equipment.
So why isn’t it happening?
I have to believe that at the high incentive levels we’re seeing on 2010 models now (and there are already some lower incentives on 2011 models, too) that some part of the business chain is taking a major hit.
In the cutthroat market that is the US, Saab’s margins are painfully thin as it is. From what I’ve learned, the US office is mostly responsible for its product combinations but they are restricted in what they can offer to some degree by the home office in Sweden. Exactly how that plays out on the ground is a mystery to me so I won’t comment on it further here, but it’s clearly evident that something needs to change.
To my mind, no premium Saab should come with that green-screen radio (regardless of how well it might function, which I’m sure it does). To me, no Saab customer should ever have to pay for heated seats. To me, a car that comes standard with a HUD says a lot more than “you can option up a HUD”. And those are just a few examples of things that could be standard and do a lot to drive home the value equation for Saab.
Some other points that were raised in the discussion….
I think it’s fair to make the assessment that Saab’s advertising in the US earlier this year failed to inspire. I think it got better as time moved on, but it was too slow and too ambiguous a beginning.
Saab are now in the unenviable position of still lacking consumer awareness, even about the basic fact that they’re still alive, let alone the features of the new vehicles they’re bringing to market.
It feels to me like the powers that be in the US have failed to scale down their operations from what they did in a massive GM operation to a smaller operation that has an absolute minimal margin for error. The thinking seems to be along the exact same lines – engage big advertising company to devise and place ads in traditional (read expensive) media, albeit with a certain degree of targeting, and hope for the best.
The ads were creative, but in the wrong way. They told the reader precious little about the actual car itself or why someone should go and take a longer look at it.
I had some advertising placed here on Saabs United (NA readers only) and whilst I was happy to place it, I worried for its effectiveness because the internet landing page that people would get to if they clicked on the ad wasn’t particularly good in terms of drawing the customer in and getting them to learn more about the new 9-5.
Saab do not have a large margin for error here. Whatever margin they had has been used in their efforts so far this year.
What seems more Saab-like to me is the use of a well written, direct campaign that places Saab as a premium offering because the cars are damn good, not the esoteric stuff around the sides. I’ve seen Curvin O’Reilly’s “adlobs” and I tend to think there’s a fair bit of meat on them for people to chew on. I think a prolonged concept campaign like that would be far more likely to engage people and tell them a story than some of the ads we’ve seen so far.
What seems more Saab-like to me is thinking through what would be the most cost-effective way to place those ads where people will see them – again and again – over a prolonged campaign period so that they have a chance to sink-in, be absorbed and acted on by viewers.
There was some talk in the discussion on US sales about a Billboard campaign and I think this suggestion has some serious merit. They appear to be very cost-effective and when well-placed in key cities, will offer up large imagery and wording to a sometimes captive audience.
Not all markets can get a TV campaign simply because of the staggering costs involved and in many ways, the internet has taken the place of TV for many people as a news and entertainment source. People still drive to work, though, and sit in traffic moving at a snail’s pace. A well worded, great looking ad could get a lot of attention.
Billboards. Targeted print. Targeted series television. And once the US website gets up to speed, targeted internet with compelling, frequent changing graphics linked to well-developed landing pages.
A one-off Superbowl campaign? No thanks. $3 million plus the cost of producing the ad in the hope that for 30 seconds it’ll a) be a hit, and b) be on while people aren’t in the bathroom? That $3.5 million could fund a deep-connecting social media effort for more than a decade and a half.
Here’s one of those cases where there’s definitely a lack of knowledge amongst the crowd. I’ve asked around a bit about this one.
Yes, the SaabUSA website looks dated and the Build-Your-Own interface is in dire need of a re-write. I agree with everyone here that the refurbishing of the website should be a very high priority for Saab – and I believe that it is.
One thing you probably don’t know (I didn’t until I asked) is that the SaabUSA website isn’t just a standalone property giving information about Saab cars. If it were, any web programmer with more than a week’s experience could have built a new one for them.
The SaabUSA website is part of a global series of sites that Saab are in the process of unwinding from GM’s infrastructure. The process – which is a global one – is well underway but it’s critical that it be done the right way because if it isn’t, then a whole bunch of software interfaces behind the scenes, assets associated with customer relations management, dealer relations, etc – those links will be broken.
What this means is that Saab will continue to be hindered by what we all see as a sub-optimal web presence until that global project is completed. And before you ask…. No, I don’t know the timeline on that.
Bottom line – they’re working on it and from what I can tell, working on it pretty hard.
In my lifetime, I’ve owned two Saab 99 Turbos (well, three, actually), one of the first 16-valve Saab 900 Turbos, a Saab 9-3 Viggen and my current Saab 9-3 Monte Carlo. All of these cars were at or very near the top of Saab’s tree in terms of performance models, when they were released to the Australian market.
Why do I say this? I want to point out that no-one likes a Saab performance model any more than I do.
I would love to see Saab do some sort of statement car as a real car for sale, not just a concept. Nothing would please me more.
But I have to curb my enthusiasm for this segment, simply for the fact that Saab have to walk before they can run. The extreme performance extension is something that can easily be done from a position of strength, which is why BMW, Audi and Mercedes do them so well – they throw caution to the wind because it doesn’t matter to the company over all if the hi-po model isn’t financially successful.
Saab just don’t have that luxury.
Special editions of the near future will most likely feature interior and exterior enhancements but BIG performance to a production standard takes a BIG investment in terms of development and compliance, and Saab just don’t have that money to pin on a few trickle-down sales.
It’s just my opinion, but I think it’s based on sound reasoning and one that Victor Muller echoed when asked about a Viggen line (see the Autoline Detroit interview linked above, at around 1:20).
There are a number of other things I could talk about here. Dealerships, dealer service, dealer training, experience marketing, etc. I’d love to do that but I’m over 3,000 words already and I suspect some of you have work to do today 🙂
Saab have a lot of work to do, too. They’ve worked extremely hard on the design and engineering side to bring some great cars to market. A number of national offices have done a great job in promoting them, too.
The US office has struggled, though. I don’t know the solution, but I think the things I’ve posed here are relevant.
The cars are extremely good. Just ask someone who bought one. SCNA and their dealers just need to find the magic bullet that will get people in to drive one.