A weak car brand like Saab does not fit the policy of the Chinese government

Het Financieele Dagblad, June 15, 2011

Original publication in Dutch:

Een zwak automerk als Saab toevoegen past niet in het beleid van de Chinese overheid

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English Translation:

Victor Muller of Saab seems to have been saved by winning over Chinese Youngman as a production partner for Saab. But it is very unlikely that the Chinese government will approve the deal. And certainly not in the short term.

It is not very probable that the NDRC, China's mighty planning agency, will approve the Youngman-Saab deal

Victor Muller has done more for the promotion of the Chinese auto industry than hundreds of expensive campaigns. Until recently Hawtai, Pangda and Youngman were unknown Chinese car companies, but are now, thanks to Muller, suddenly on the map in the West. Four days later after a collaboration with Hawtai bounced half of May, he was able to trick China's largest car distributor Pangda for a substantial investment in the ailing Spyker. Because Pangda has no production license, a third party was necessary.

Therefore Youngman was found, which will take a share of 29.9% in Spyker for €136 million. Pangda will increase its investment up to €109 million. According to Spyker CEO Victor Muller this funding will secure his company in the medium and long term. That is, however, doubtful. The probability that the National Development and Reform Commission (NDRC), the mighty Economic Planning Agency China, will approve the deal, is small.

"I do not expect China to approve this deal, especially not in the short term”, says Namrita Chow, analyst IHS Automotive in Shanghai. Spyker is in a great hurry to find a wealthy partner for Saab. Therefore Chow is surprised that the company thinks this construction will soon get approval. "Spyker, has entirely misjudged the Chinese market. The NDRC will not allow Spyker to impose a time table. I don’t expect that there will be a decision within ten days. The approval of the cooperation between PSA Peugeot and Changan Automobile also took over one year. "

To survive Saab cannot do without an injection for such a long time. Bill Russo, senior automotive consultant with Booz & Company in Beijing also warns against too much optimism. "Deals in China are often more complicated than they seem at first. Much effort remains to be put into negotiating contracts and acquiring approval of the government. That takes time and Saab does not have that luxury."

According to Russo, a detailed joint venture agreementand a feasibility study are required as proof of the financial need for the deal. "All expenditure on R&D and manufacturing and locations must be included. This will cost 18 to 24 months."
Apart from the time pressure, analysts see no reason why China would approve the deal content wise or financially. "I just do not see it happen," Chow says. "Saab is an onerous and highly distressed brand, while Youngman is not among the top fifteen the Chinese car manufacturers. "

"Adding a weak player is not consistent with government policy ", says Russo. With investments by Chinese companies the NDRC looks at the wordlwide power of a car brand and the technology. "The NDRC is also trying to consolidate more than one hundred dealers, including many weak players, into a few strong players. Adding a weak global brand does not fit into that policy. "

A complicating factor for Youngman is that Beijing Automotive Industry
Holding Company (BAIC) wants to bring old Saab Models on the Chinese market with General Motors licenses, the former owner of Saab. They are not allowed to be called Saab, but they will intensify competition with Pangda-Youngman. "BAIC will be very unhappy about the deal between Saab and Youngman and lobby firmly against it in Beijing" Chow expects. "The big players in China will not buy the Saab brand," Chow thinks. "It has no positioning in China and will lose a lot of money. There is no interest for that. "