Connect to share and comment
No Saab story: Unlike Washington, Stockholm declined to save its automaker. Is that why Sweden's economy is sizzling?
TROLLHATTAN, Sweden — At the Saab museum here in western Sweden, the car maker's company history sits parked in line.
There are models from the company’s boxy beginnings. Then there’s the Saab 900, still believed by aficionados to be the best turbo hatchback ever made. And then there’s the ePower, a streamlined electric model that the museum’s manager says is "probably years from actual production.”
The word "probably" hangs in the air. When he said it, the company’s future was very much in the balance, with only a matter of hours to either agree to a Chinese takeover, or be declared bankrupt. Crippled by a liquidity crisis, Saab hadn’t produced cars in months.
That night, last Thursday, the deal was done. Victor Muller, the charismatic Dutchman who has spent the last two years battling to revive the company, agreed to sell 100 percent of Saab’s shares to Chinese companies Pang Da and Youngman, for just 100 million euros ($140 million). That’s less than half the amount they had offered previously.
Wheels of dreams: Why aren’t electric cars catching on?
The buyers pledged to invest 2.2 billion euros ($3 billion) in Saab, but there’s bad news as well. In the near term, Pang Da and Youngman will cut 500 Saab jobs in Trollhattan and slash $157 million in costs. A new manufacturing plant will be added in China.
But rather than complain, people in Trollhattan welcomed the deal. "This is clearly very positive," said Paul Akerlund, the town mayor, who served his political apprenticeship as a union steward at Saab. "Saab employees can now feel they have a second chance."
After America’s recent automaker bailout, it’s hard to imagine the same welcome coming from blue collar democrats in Michigan if the Chinese bought out Cadillac.
National pride may be part of why GM put Saab up for sale in the first place, as part of the price it paid for a $49.5 billion bailout from the new Obama administration.
"The government appointed chief executive of GM wanted GM to focus on its North American factories exclusively," argues Rune Moberg, a Saab blogger based in Trollhattan. "I think their rationale was that American tax money should not subsidize work places on other continents."
Germany was also protective. When GM put Opel, its German brand, up for sale at the same time, the German government stepped in, giving the American company a 1.5 billion euros ($2.2 billion) bridge loan to keep it in production.
But the Swedish government from the beginning insisted that it would do nothing.
"The Swedish state and taxpayers in Sweden will not own car factories," Maud Olofsson, the industry minister, said in 2009, as GM struggled to find a buyer. "We don't have the expertise and we don't have the money."
Sweden’s Prime Minister Fredrik Reinfeldt made the case against bail-outs more philosophically.
"They’re very often done simply so politicians can tell voters, ‘we are looking after the money you’ve paid in tax, and we’re making sure it is only used for purposes close to home,’" he said.
"That will make the world poorer. We would be knocking down one of the principles that has made the world wealthy: That we become prosperous when we trade across borders."
According to Sven Steinmo, an expert on the Swedish system at the European University Institute, letting inefficient businesses go bankrupt isn’t a new hard-line policy brought in by Reinfeldt’s center-right Moderate Party.
It’s at the center of the economic model designed by the Swedish Trade Union Confederation back in 1951. "According to this model, Sweden must maintain an open economy, with low tariff barriers and low subsidies to domestic industry, so that inefficient and low profit companies would be driven out of business," Steinmo told GlobalPost.
Steinmo argues that Sweden's faith in the market's ability to choose winners and losers is one reason why the country boasted the highest economic growth in Europe last year, at 5.6 percent, despite taxing its citizens 54.7 percent of their income.
Right outside the Saab museum, a giant black cast iron steam engine stands as a monument to this unsentimental approach. In 1951, the Trollhattan train manufacturer Nohab was an industrial giant, sending its trains, ship engines, and power turbines everywhere from Soviet Russia to Brazil.
But when it faced bankruptcy in 1979, the Swedish state let it go. Its main businesses were sold off to Finnish and Norwegian companies.
Call it creative destruction. Out with the old, in with the new.
The old Nohab premises now house Scandinavia’s largest film studio, where Hollywood star Kirsten Dunst last year shot "Melancholia," for which she won best actress at Cannes.
Sweden's push for profitability may be why Saab sold off its car division back in 1989 to focus on aerospace, and why Volvo a decade later sold its car division to Ford for $6.5 billion. Both now seem impressively prescient.
When the Ford deal was done in 1999, Ford had just made the largest annual profit in corporate history.
Few foresaw that six years later it would post the largest ever corporate loss, before selling Volvo Cars to China’s Geely at less than one-third of what it paid, as it did last year.
Saab’s new owners Pang Da and Youngman have an advantage over GM and Ford. Should Sweden’s higher wage costs make it uneconomic to produce, even at Sweden's efficient plants, it will be easier for them to shift production to China. But according to Mikael Wickelgren at the Centre for Consumer Science at the University of Gothenburg, it will be some time before that happens.
"There are no indications that the production will be moved in the short-term — that is, within the next five to six years," he told Swedish newspapers after Friday's announcement. "Trollhattan is and will continue to be the epicenter of Saab production."
The Chinese on Monday announced plans to invest $840 million to bring the company's new models to market.
"It feels incredibly good for a long period of uncertainty to come to an end," Muller said. "We can pay our debts, start production, launch new models and expand operations to China. It’s fantastic because the future of the company is now secure."
For the Swedish state, it will be money for nothing.