The heir apparent to the top job at Saab Automobile AB, Peter Augustsson, will take over a company at the crossroads.
With the aid of a substantial investment from General Motors, Saab has redesigned its model lineup and is now modestly profitable.
But Saab's owners will not subsidize the company indefinitely, and the company will have to finance future products from its own profits. That means Saab will have to grow sales - or accept a modest status as a niche luxury-car maker.
'We are fully responsible for funding our individual products,' said Augustsson, who is currently COO at Saab, responsible for day-to-day operations.
There will be no more money coming from the partners. Both agreed to one last round of investments in 1996, as one executive put it, 'to keep Saab from starvation.'
Augustsson was hired last year by Saab President and CEO Robert Hendry, who also is chairman of Adam Opel AG. Previously, he was CEO of SKF, the Swedish industrial bearings group.
By the time the 44-year-old executive takes over as president, part owner GM will have decided whether it wants to buy the remaining 50 percent of the company it has run since 1990. But even if GM takes 100 percent ownership, financially strapped Saab does not expect its American patron to open its financial treasure chest and pour in millions.
Saab is surviving on its own meager profits and the $1.5 billion in investments GM and partner Investor AB have made since 1990.
The Swedish automaker is living with the consequences of being small. Run by a management team laden with executives from rival Volvo, Saab is trying to make cars that better fit its image as a unique luxury brand.
Saab knows until it increases unit sales, there is little sense in expanding its dealer network or moving more heavily into Asia and South America. During the next year, Saab will put its resources into developing the four main European markets.
It is already strong in England, and sales are rising in Italy. But it remains weak in France and Germany, Augustsson said. Saab must broaden its appeal and increase volume past the 150,000 units it has targeted for next year.
The immediate goal is to turn a profit this year and reach sales of 130,000 to 135,000 units, up from 118,580 last year.
Saab expects to produce 120,000 vehicles at its Trollhattan, Sweden, factory. Valmet Automotive will build the remainder - including the 9-3 convertible and 9-3 Viggen sport model - in Finland.
PROFIT AND PLATFORM
Profitwise, Saab is on target. The company reported an operating profit of $21 million in the first six months of 1999 despite a sales slump in England and flat sales in France and Germany. For Saab, a bigger stream of income is essential.
Saab last turned a profit in 1995. It has lost a total of $481 million during the past four years. But Saab's profits will get a boost when it uses GM's new Epsilon platform for the next-generation 9-3 in 2002 and a few years later for the 9-5 replacement. Epsilon is GM's first global platform for GM; the automaker will use it to design European and North American cars.
Although the common platform will cut development costs, Saab must fund the features that will give its new Epsilon-based vehicles the characteristics essential for maintaining Saab's brand image, Augustsson said.
Saab believes four traits are essential to its brand image: performance, safety, style and driver's sense of control. Some of these characteristics are similar to those of Volvo, Augustsson's employer for 16 years, where he was in charge of Volvo's 850-model lineup. But Saabs are more sporty and dynamic than Volvos, he said.
Augustsson is eager to have a smaller car for Saab, primarily to expand sales in Europe, and a sport-utility for the United States.
'It's impossible for Saab to stay at a volume of 150,000 cars. We are half-pregnant, and that is impossible,' Augustsson said. 'We have to decide whether we continue to grow or go back to 90,000 or 100,000 units a year. We need another product, but it is impossible to make another Mercedes-Benz out of Saab Automobile.'
Insiders say the small car and sport-utility have been discussed with GM but nothing has been approved. GM is conducting studies to see whether it can build the sport-utility on the Epsilon platform. In theory, Saab could build a small car using GM's Delta platform, which it will use to produce the next Opel Astra in 2003.
But the new cars are unlikely to get the go-ahead until GM makes up its mind about how much to increase its stake, an insider said.