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Saab tries to escape a cul-de-sac
By Nicholas George and James Mackintosh
Published: March 11 2004 4:00 | Last Updated: March 11 2004 4:00

Cakes are being handed out on the factory floor at Saab Automobile's Trollhättan plant in western Sweden to celebrate hitting production targets on the new assembly line.

The process of designing and setting up a single line that can handle both Saab's 9-3 and 9-5 models has been complex but now the first goal of 39 cars an hour has been reached.

The cakes - a mixture of raspberry mouse and custard cream - are gobbled up, but no one is quite sure what they are called. "They are special and from around here," explains Arne Degermosse, production manager.

He could just as well have been describing the gleaming new cars that are rolling off the line outside his office. Distinctive and Swedish, but difficult to classify. Without the mass appeal of an Audi, yet lacking the exclusivity and price tag of a Porsche.

Although it has spent more than a decade under the control of General Motors, Saab has battled to maintain its individuality. The price of that strategy has been high - Saab has missed all the big product trends of the 1990s and has unsustainable production costs.

Now GM has run out of patience and the next Saab is being built in Japan by Fuji Industries.

Late in the day, Saab is at last having to adapt to the customs of a global industry. The question it faces is whether by doing so it will lose its reason to exist. After all, the sometimes idiosyncratic image is a crucial part of the brand's appeal, from the VW Beetle-like designs of the first cars in the 1940s to the hulking, blunt lines of the 900 series in the 1970s and 1980s. Saabs have their ignition switches beside the gear stick and cup-holders that unfold.

According to Peter Augustsson, chief executive, customers value this. "They appreciate buying something that is not mainstream. They dare to stay on the side of the main route in the premium segment."

The problem for Mr Augustsson is that such customers are few and far between. Sales stubbornly refuse to grow and, while last year's total of 132,000 is up from a trough in the mid-1990s, it is still below the level of 1987.

Saab has been successful in discovering its own niches, from turbo engines to convertibles, but it rarely translates these into significant sales. Moreover, in the past decade it has spectacularly misjudged market trends and these failures have been felt on the bottom line. Since 1989, when General Motors bought a 50 per cent stake and gained management control, the company has recorded an annual profit on only two occasions.

In the past few years the losses have ballooned to record levels, SKr4.5bn (£330m) in 2002 and another SKr1.5bn in the first six months of 2003. Mr Augustsson will not yet give last year's full figures but talks of a "big loss". GM, which acquired the rest of the company in 2000, has run up cumulative losses from its involvement nearing SKr20bn.

Mr Augustsson is wary about predicting when the company will start making money. "Will we do it this year? I honestly don't know," he says, pointing to the difficulty in forecasting market conditions and the strength of the dollar.

His caution is understandable. Saab is a serial offender when it comes to missing targets. Back in 1989 GM was predicting profitability in 1991 and since then a series of chief executives have promised turnrounds that have failed to arrive.

Low sales have left the Trollhättan factory hopelessly underused and un-competitive. GM's patience ran out at the end of 2002, when two US executives were sent to Saab to shake it up. A restructuring programme - dubbed Viggen, Swedish for "thunderbolt" - was introduced and last year Saab cut 1,390 jobs, 18 per cent of its workforce. It also pushed material costs down by about 5 per cent and engineering costs by 35-40 per cent. In the past three years the number of hours of work per car produced has been reduced from more than 50 to about 30.

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