Saab-Scania AB

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Saab-Scania AB

S-581 88 Linkoping
(46) 13-180000
Fax: (46) 13-181802

Public Company
1937 as Svenska Aeroplan Aktiebolaget
Employees: 32,000
Sales: $6.00 billion
Stock Exchanges: Stockholm
SICs: 3711 Motor Vehicles & Car Bodies; 3713 Truck &
Bus Bodies; 3721 Aircraft; 3761 Guided Missiles & Space
Vehicles; 3541 Machine ToolsMetal Cutting Types

One of the worlds oldest automobile manufacturers, as well as a respected producer of aircraft, missiles, and energy systems, Saab-Scania AB has faced significant challenges in the 1990s. In 1989, as its inefficient automobile division continued to lose money, Saab-Scania entered into a joint venture with General Motors Corporation. The combined effort made important productivity improvements, but the company still sought to gain ground in the highly competitive global automobile industry. In 1991, threatened by looser trade restrictions when Sweden joined the European Community, industry baron Peter Wallenberg staged the largest leveraged buyout in Swedish history to gain control of Saab-Scania. With all these changes, Saab-Scania hoped to return to its long history of success.

In the early 1890s the English bicycle manufacturer Humber built a factory in Malmo, Sweden, called the Svenska AB Humber & Company. Near the turn of the century, the plant was sold to Swedish interests and the name was changed to Masin-fabriks AB Scania. Initially the plant manufactured vacuum cleaners and paper machines as well as bicycles. New bicycle models introduced in the early 1900s cost the average consumer the equivalent of six months wages, so ownership was limited to the wealthy. At the time, the company was also manufacturing a primitive type of motor vehicle, consisting of a French gasoline-powered engine with an English carburetor fastened to a bicycle frame. The construction of this vehicle was important in that it gave the company practical experience in combustion engines.

In 1901 a new managing director, Hilding Hessler, and a new plant manager, 23-year-old Anton Svensson, assumed control of company operations. The two men began focusing on the manufacture of automobiles. During 1901 and 1902 the companys best engineers, Fridolf Thorssin and Tomas Krause, built at least three experimental models. All were constructed with the engine and gearbox under the drivers seat. Svensson, however, believed that the engine should be placed in the front of the car. This disagreement led to Thorssins departure from the company, at which time Svensson decided to establish a regular production model based on his own ideas.

At the beginning of 1903 Scania offered three models: the four-seat Model A, the two-seat Model B, and the Model C, a larger, luxury car. The Scania automobiles featured one-, two-, and four-cylinder engines, respectively, ranging from 4.5 to 24 horsepower. The engines were purchased from the Kemper Motorenfabrik in Berlin, thus enabling Scania to concentrate on the development of a chassis. The new vehicles were remarkably advanced for their time, featuring a track-rod steering system and central chassis lubrication. The Scania Model A featured a rear seat that could be converted into a small loading platform.

In 1911 Scania merged with the Vagnfabriks Aktie Bolaget in Sodertalje (Vabis), a railroad car manufacturer which had also been producing automobiles since 1897. The new company, Scania-Vabis, developed the worlds first purpose-built bus. In 1924 Scania-Vabis decided to concentrate its efforts on the manufacture of larger trucks and buses, and in 1929 it discontinued automobile manufacture altogether. The company introduced its first diesel engine in 1936.

With the threat of another war in Europe, it became imperative for Sweden to improve its defenses. Not least important was the need for a domestic aircraft industry large enough to supply the Swedish forces with military aircraft. This led to the formation in April 1937 of the Svenska Aeroplan Aktiebolaget, abbreviated SAAB. Two years later, SAAB, with headquarters in Trollhattan, took over the aircraft division of the Aktiebolaget Svenska Jarnvagsverkstaderna, or Swedish Railroad Works, located in Linkoping. SAAB subsequently transferred its corporate headquarters and construction and design departments to Linkoping.

Construction was accelerated at both the Linkoping and Trollhattan plants, which were building aircraft designed by Bristol, Junkers, and Northrop. During this period work proceeded on the first SAAB aircraft, the Svenska B-17 dive bomber, which made its first flight in 1940. When war came to Europe, however, Sweden declared itself neutral. As a result the country was spared from occupation by Nazi troops which had already taken control of its Scandinavian neighbors Norway and Denmark.

Plans for car production at the SAAB plant at Trollhattan started evolving as World War II neared an end, and management sought to widen the production program to meet an expected decline in military aircraft requirements. The success of small European cars in the Swedish market just prior to the war provided management with confidence that cars of the same type would also prove popular in the future, and that demand would be steady enough to ensure the success of a SAAB automobile.

A talented aircraft engineer named Gunnar Ljungstrom was placed in charge of the development of the SAAB auto, the first prototype of which, the 92001, was ready by the summer of 1946. The body design, however, was neither practical nor aesthetically pleasing. The car was reintroduced in 1947 with an improved external design and was designated the 92002. The design of this model was to characterize SAAB automobiles for the next 30 years. Streamlining helped to reduce fuel consumption and engine wear, and enabled the car to reach speeds of 60 miles per hour. Despite a number of minor shortcomings, the cars road performance was excellent, and its appearance was stylish and popular.

Improved versions of Ljungstroms original design appeared throughout the 1950s, and by 1955 SAAB automobiles had become the most popular in Sweden; one car left the assembly line every 27 minutes. In order to meet anticipated demand, more plant space was required, and a new factory was established at Goteborg to manufacture engines and gearboxes.

During the previous 20 years, Scania-Vabis developed and produced heavy vehicles, particularly trucks and buses. While somewhat less dynamic in character than SAAB, the company managed to make several innovations in Swedish industry, including the introduction of a turbocharged diesel engine in 1951.

SAAB continued to develop a variety of aircraft, particularly military fighter jets. The first of these was introduced in 1949, and production in various forms was maintained throughout the 1950s. The SAAB aircraft division also held licenses to manufacture foreign-designed aircraft and produce aircraft components for foreign manufacturers.

As early as 1953 SAAB management started exploring the possibility of selling cars in the United States, but hesitated to enter that market until 1956, when a more promising atmosphere had developed. Using New York City as a base of operations, an American subsidiary was created to import SAAB automobiles, and a depot was established near Boston to receive cars and store spare parts. It was a modest beginning for a small foreign company in the worlds largest automobile market, and growth was difficult and slow.

During the 1960s the scope of SAABs operations expanded from automobiles and aircraft into satellites, missiles, and energy systems. On May 19, 1965, as its business continued to grow, the company changed its name to Saab Aktiebolag (the acronym had become so popular as to warrant the elimination of the old name). Over the next four years, officials of Saab and Scania-Vabis began to investigate the viability of operating as a single corporation.

Saab and Scania-Vabis merged their operations during 1969, and absorbed two other military contractors, Malmo Flygindustri and Nordarmatur. All automotive operations of the new Saab-Scania AB were centered at the facility in Sodertalje, and the aircraft division headquarters, which produced the JAS-35 Draken and JAS-37 Viggen fighter jets, remained at Linkoping. Also in 1969, Saab-Scania, in cooperation with the Finnish company Oy Valmet AB, established an automobile factory at Uusikaupunki, Finland.

Saab-Scania decided to focus its efforts on competing for a significantly larger share of the American automobile market, the main goal being to define its cars as a better choice than those offered by BMW, Mercedes-Benz, and Volvo. These cars had been highly successful with more affluent American consumers. The expanded marketing campaign produced few results over the first half of the decade, but by 1978 began to pay off handsomely. The companys sales increased by 19 percent in America and by 17 percent in Scandinavia.

In 1980 the company introduced a new line of Scania trucks based on a unique method of modular construction. These trucks were primarily class 7 vehicles (26,001 to 33,000 pounds in gross vehicle weight), which became extremely popular in the United States. Meanwhile, the automotive division was preparing to introduce a restyled line of cars in its 9000 series; they were introduced in 1984 and proved to be popular. However, problems related to retooling production plants thwarted a planned expansion of production capacity by 10 percent during 1985.

Saab-Scania entered into a joint venture with Fairchild Industries of the United States in 1980 to develop a new 30-36 passenger commercial airliner called the SF340. However, a corporate restructuring of Fairchild forced the companys withdrawal from the project in 1985. Saab-Scania took complete control of the SF340 in November of that year and completed the project in 1986. The SF340 remained in service with a number of airline companies in the mid-1990s, providing connection services between small airports in outlying areas and major airports. The aircraft division also started development of the JAS-39 Gripen fighter jet, which was scheduled to enter service in 1992.

In the late 1980s, Georg Karnsund, Saab-Scanias president, placed greater emphasis on marketing programs in Europe, particularly in France and Italy, as well as in Australia and Japan. Karnsund believed that Saabs ability to develop advanced technology would give its cars a distinct advantage in increasingly competitive international markets.

For Saab-Scania, the 1980s ended with the conclusion of a pivotal deal that ceded half of its automobile operations to General Motors Corporation. Prior to the consummation of the 50-50 joint venture with Saab-Scania, General Motors had sought to acquire Jaguar Cars Ltd., a British manufacturer of luxury cars, but in November 1989 the U.S. car maker was beaten to the prize by rival Ford Motor Company. Still in the mood to acquire, and seeking to increase its presence in the European luxury car market, General Motors entered into its joint venture with Saab-Scania the following month, paying $600 million to gain 50 percent interest in the prestigious yet troubled car maker.

By the late 1980s, Saab-Scanias automobile segment was becoming a perennial financial loser, crippled by declining sales in the United States, the companys largest single market for car sales. The affiliation with General Motors was expected to ameliorate Saab-Scanias position overseas, but at home, larger, more formidable obstacles faced the company and its enormously powerful part-owner, Peter Wallenberg. In addition to holding a controlling interest in Saab-Scania, Wallenberg maintained sizable investments in many other large Swedish companies, including appliance maker Electrolux Corporation and L.M. Ericsson, Swedens largest communications company. Wallenbergs empire accounted for a third of Swedens $165 billion economya much-coveted portfolio when the countrys economy was robust, but a financial nightmare when economic conditions soured as they did entering the 1990s. To make Wallenbergs position more precarious, by 1990 Sweden was prepared to join the European Community, which would force the country to drop its protective economic barriers. These barriers had insulated Wallenberg against foreign corporate raiders and thus enabled him to control companies that represented $55 billion in market value with only $5 billion in equity.

Fearing a hostile takeover, Wallenberg increased his ownership of Saab-Scania in 1990 from 36 percent to 58 percent, then initiated the largest leveraged buyout in Swedish history the following year after learning that outside investors were planning to acquire ten percent of the companys stockpurchasing all of Saab-Scania for $2.3 billion. Against the backdrop of Wallenbergs strategic maneuvers, Saab Automobile, the companys joint venture with General Motors, continued to lose money, recording a loss of $848 million in 1990, which translated into an alarming $9,200 loss for each car sold. Although the other segments of Saab-Scania compensated for the drag of its car sales, giving the company a $375 million profit for the year on $5.4 billion in sales, a revival of its automobile segment represented an integral component of the companys resurgence.

By 1992, it appeared that Saab Automobile was destined for a more profitable future, thanks in large part to the assistance of General Motors management, who greatly improved the segments manufacturing efficiency. When General Motors management arrived at Saab-Scanias car operations in 1989, it took 100 hours to produce a single car, but by 1992 the hours required per car had been whittled down to 50 or 60 hours, cutting in half the production quota required to generate a profit. Although Saab-Scania and General Motors needed to effect further improvements to spark a complete resurgence of Saab automobiles, progress was being made. The introduction of a replacement for the 20-year-old Saab 9000 series in mid-1993 fueled hopes for a recovery of Saabs U.S. sales, a necessary ingredient in Saab-Scanias revitalization. Meanwhile the companys Saab 2000 aircraft, designed for regional airline service and introduced in 1994, added to managements optimism for the future.

Principal Subsidiaries

VAG Sweden Group (67 percent); Bill & Buss Group; Saab-Ana Group (Sweden); Saab-Scania of America, Inc.; Saab (Great Britain) Ltd.; Saab-Scania Combi-tech Group; Saab-Scania Enertech Group (Sweden); Oy Saab-Valmet AB (50 percent); Oy Scan-Auto AB (Finland; 50 percent); Scancars AG (Switzerland; 25 percent); Scania Neder-land BV (Netherlands).

Further Reading

Feast, Richard, Jaguar and Saab: Bullish on America; Ford and GM Patiently Groom Their Latest European Acquisitions for the Long Haul, Automotive Industries, May 1991, p. 14.

Flint, Jerry, Europe to the Rescue, Forbes, February 3, 1992, p. 19.

Johnson, Richard, Europeans Pinched, but Most Are Profitable in Market Dip, Automotive News, May 27, 1991, p. 2.

Kapstein, Jonathan, Fortress Wallenberg Is Showing Some Cracks, Business Week, December 10, 1990, p. 45.

Kapstein, Wallenburgs New Walls, Business Week, March 11, 1991, p. 46.

Templeman, John, Saab: Halfway through a U-Turn, Business Week, April 27, 1992, p. 121.

updated by Jeffrey L. Covell