Reassuring Hawtai

Alright, this isn’t easy for me to post but I’m going to at least get it out there so that there’s a record of it. SvD has an article describing the deal with Hawtai (English translation) as a framework that could Hawtai could easily walk away from. And according to SvD, they were none too happy with their recent visit to Trollhättan.

“After Hawtais delegation visited Saab’s idle factory in Trollhättan at the end of last week it is said that they have been aghast at how bad the situation was. They then demanded tough renegotiations with Victor Muller. If not Hawtai and Saab can be agreed before the deadline for contract expires at 14 days may be over the affair.”

SvD doesn’t name sources, doesn’t explain what part of the situation they were upset about, and doesn’t try to give any explanation of the terms of renegotiation. Then they proceed to explain how other companies like Great Wall and Youngman, two companies who had been working hard for months to ink a deal with Saab, are angry that they weren’t the ones to snag Saab.

“We were extremely disappointed and upset,” said one of Youngman’s management team who will speak on the promise of anonymity and continued, “We have a written contract with Spyker that they could not negotiate with any other Chinese company before we were done. Still, one day before Hawtai agreement we had with them. We took it for granted that they would follow the rules.”

I’m not going to defend the Spyker management for seeking alternatives, but if it truly had taken months to get due diligence done on a deal and Hawtai was able to come to terms over a weekend, perhaps it was Youngman who was dragging their feet.

Furthermore, if Saab is in such demand that others including BAIC think it’s worth fighting publicly over missing out on the deal, I think it’s wise that Hawtai appreciate the value of the deal they just won.  I’m sure they know this though, and hope they come back to the table if true. We’ll find out in the next few days.

If you want actual information about the sales process, not speculation from players who are probably trying to break the deal up for unsavory reasons (competitors, inside players making moves, etc.), Rick Kranz comes through big in a blog post at Automotive News. In it, he has actual quotes from Monday night’s meeting at the 9-4X Press briefing from Victor Muller himself. I’m posting them below because they’re extremely important to understanding how valuable a commodity Saab is, and why SvD’s story doesn’t add up to me.

Homework: “In September we put together a working group to inventory the Chinese market. That related to importation, potential partners for distribution, potential partners for manufacturing. We have been at it for half a year.”

Brand: “They are extremely keen on brand. They are more susceptible to brand image than any nation I know. Brand sets you apart. It says something about you.

“The Chinese are running around with their new Armani suits with the label on the outside. Nobody would do that in Europe or America. We would say, hey, you forgot to take off your label. No so in China.”

Volvo: “China is proud of acquiring Volvo because finally the Chinese have managed to acquire what they perceive to be a Western European superbrand.

“Hawtai’s taking a stake in Saab is like a supernatural performance, and the Chinese will embrace Saab.”

Strategy: “I had a pretty good negotiating position. I positioned what I could sell as a stake in the last premium, independent, European car company. If you do not get this one, you are not going to get a position in Audi. You are not going to get a position in BMW. You are not going to own Mercedes, or maybe they will.

“We had people clamoring at the door. If you don’t get this one, you are done because there won’t be another one.”

Players: “That was pretty much in the last phase when we were down to three, all of which made offers you could not refuse.”

Deal: “I was actually negotiating with three at the same time in the same hotel. I could write a movie.

“I was working 24 hours a day, working three rooms with three different parties. Honestly, making the best deal here, walking to the next room, saying, ‘This is what I can do.’

“And I was in a hurry, too, because I had to get it done. I slept 5 hours in 70 hours.

Skills: “I was a mergers and acquisitions lawyer in my previous life. That is my job, making deals, making sure things happen. It is not very interesting to negotiate. It is the results that count. The rest is irrelevant.”

Future: “The Chinese are very, very smart. I have worked with them for 25 years. We can learn a lot from them. I am always inspired when I leave China. I know this is China’s century, and we are just here to watch.”

I do think some of the details of their story might be true, including ongoing negotiations to iron out details, Victor flying to China for continued meetings, or even shopping other deals if they think it’s possible. But let me reiterate in plain language: I don’t think Hawtai is foolish enough to let this deal fall through, it’s too valuable for them at this point. The brand hardly registered in the minds of Chinese consumers before they tied up with Saab, for €150 million the PR from the deal is almost worth it on its own (obviously they’re getting a lot more than that for their money, including a stake in what will be a very profitable European automaker soon). Feel free to read the article and comment below, but try to keep it rational and please think twice before you press the submit button. Otherwise just wait until concrete information backed up by multiple independent sources emerges, speculation has proven to be anything but helpful through this process.

________________

So we know the story was true, but now we also know the context which VM made those comments to the reporters. If anything gives me reassurance it’s that Saab is in demand in China, it’s this.

On Chinese Partnerships

Unless your F5 key isn’t permanently stuck to your keyboard, you might not have heard that Saab is in talks with three Chinese manufacturers with the aim of an immediate cash injection. What exactly is the Saab management team trying to negotiate? According to Bloomberg, there are at least three goals:

  1. Get quick cash to restart production
  2. Gain access to the Chinese market to sell and market their vehicles in a more direct way
  3. Joint-venture with a Chinese company to produce Saabs in China.

On the first point, Saab has come up with various plans, all of which have either dragged on due to complications with the EIB, GM, or any number of other factors. A joint-venture with a Chinese manufacturer can bring with it an immediate liquidity injection through a sale or licensing of technology. This mutually beneficial arrangement helps Saab survive and allows the Chinese company access to world class engineering, safety, and AWD technology that could catapult it ahead of its competition. If you’re not familiar with the new rules of the auto industry that Victor Muller likes to talk about whenever he gets a chance, they have changed. By leveraging their superior technology, Saab can be a power player in the segment which gives them clout.

While many of you might loathe the fact that Saab might be selling out to the Chinese, lets think longer about just how beneficial such an arrangement could be. On the second point of access to the Chinese market, Saab could immediately have access to a dealer network in China. Companies like BMW, Audi, and even Buick fare extremely well among Chinese consumers because they carry with them a certain mystique and reputation for being better than domestic brands. Saab could naturally stand apart and has a great chance of doing well in China, but without proper distribution channels, they don’t have a shot. By elevating a partner domestic brand in China, they can also help to kill off some of the competition on the lower end of the segment (think Chevrolet, VW), while leaving Saab to compete against premium brands. This lets each company chase their own niche.

On the third point of producing Saabs in China, my stance is that if Chinese production is good enough for Mercedes, BMW, and Audi, it should be fine with us. As much as I’d love my car to originate from Sweden, the truth is if you read a label on a new Saab you’ll see that parts are sourced from all over the world already. So long as Saab engineering and management stays in Sweden and the company keeps its headquarters and spiritual identity in Trollhättan, I could care less where my car is built so long as it trumps the competition in quality and style. If you’ve been keeping track of Swade’s adventures in Sweden over on Inside Saab, you’ll see that he recently attended a meeting with suppliers and engineers that helps cement these jobs in Scandinavia by investing in new innovation for weight reduction. That said, all indications are that any production in China would be intended for the domestic Chinese market, something that makes a lot of sense given that they’re now the largest auto market on earth.

With those main points addressed, let’s focus on just who the background of these automakers.

 

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