Bloomberg News

Youngman May Not Be Lifeline For Saab, Analysts Say

June 15, 2011

(Corrects ninth paragraph of story published June 14 to show Youngman uses engineering from Lotus.)

June 14 (Bloomberg) -- Saab Automobile owner Spyker Cars NV’s agreement to sell a 29.9 percent stake in the struggling Swedish company to Zhejiang Youngman Lotus Automobile Co. may not help the carmaker turn itself around, analysts say.

Youngman may be too small a carmaker on the Chinese mainland to obtain government approvals to manufacture cars in the world’s largest auto market, analysts from IHS Automotive, Synovate Motoresearch and Autoforesight Shanghai Co. said. There is also a high likelihood China’s focus on automotive industry consolidation may scuttle the deal, they said.

Spyker, based in Zeewolde, Netherlands, is trying to secure long-term financing for Saab after a payment dispute with components suppliers caused the company to halt output for seven weeks in April and May. Spyker said yesterday it will sell the stake in the Swedish carmaker to Jinhua, eastern China-based Youngman for 136 million euros ($197 million). Pangda Automobile Trade Co., which agreed to invest in Saab in May, will also pay 109 million euros for a 24 percent stake.

“I have the impression that Saab is scrambling for any partner in China now,” said Lin Huai Bin, a Shanghai-based analyst at IHS Automotive, in a telephone interview. “If Saab wants to succeed in China, they need to find a sizable company with good profit and good government connections,.”

Government Approval

Youngman may find it difficult to convince the Chinese government to give approval for a manufacturing venture, given the company’s size and China’s wariness to allow further capacity expansion in the auto industry, Lin said.

China has been trying since 2009 to reduce its auto industry to 10 companies holding 90 percent of the market from about 100 manufacturers currently. The China Association of Automobile Manufacturers sales data doesn’t rank Youngman among the nation’s top 10 carmakers.

The deals with Youngman and Pangda need approval from Chinese authorities, the European Investment Bank, Sweden’s government and national debt office, and from General Motors Co., which sold Saab to Spyker for $74 million in cash and $326 million in preferred shares in February 2010.

The Chinese investment “significantly strengthens Saab’s financial position,” Victor Muller, chief executive officer of Spyker and Saab, said yesterday.

Youngman, whose parent company makes buses with Germany’s MAN SE, uses engineering from U.K. carmaker Lotus Cars. Five phone calls made to the company’s office weren’t answered.

Chinese Tastes

“We feel that Saab as a premium European brand appeals strongly to the taste and preferences of the Chinese customer,” Pang Qingnian, chief executive officer at Youngman, said in a statement yesterday.

The accord comes a month after a carmaking agreement with Beijing-based Hawtai Motor Group Co. collapsed. Spyker blamed the breakdown on Hawtai being unable to obtain the necessary approvals, while Hawtai cited “commercial and economic realities.”

“There is still a lot of doubt if the government would approve this deal, following Spyker’s Hawtai experience and the government’s efforts to consolidate the industry” said Klaus Paur, managing director for Greater China at Synovate Motoresearch in Shanghai. “There are more similarities than differences between Youngman and Hawtai.”

Saab’s sales have plummeted in recent years and the carmaker was on the brink of collapse during the financial crisis before Spyker bought it.

Controlling Inflation

China’s focus on controlling inflation and tightening lending may also limit the tie-up’s success, said Robert Theleen, chairman and co-founder of investment capital firm ChinaVest Ltd.

“The auto industry is low priority for the government at the moment,” said Theleen, who provides cross-border merger and acquisition advisory services for multinationals in China. “They’d also prefer to see how the Geely-Volvo deal pans out.”

Zhejiang Geely Holding Group Co. threw luxury marquee Volvo a lifeline in 2010, the biggest overseas acquisition by a Chinese carmaker. Geely Automobile Holdings Ltd., its listed unit, boosted car sales 27 percent and net income 16 percent to 1.37 billion yuan ($211 million) last year.

Saab’s branding as a niche and luxury product may work against the bid, said Yale Zhang, managing director at Autoforesight in Shanghai. This brand positioning would restrict production at the Youngman-Saab joint venture to fewer than 100,000 units a year, less than the minimum number needed to convince the authorities to approve the tie-up, Zhang said.

Youngman and Saab will each own 45 percent of the proposed new manufacturing venture, while Pangda will hold the remaining 10 percent stake, according to the statement yesterday.

Saab last year sold 31,696 cars and has said it will be unable to meet a target of 80,000 this year due to the production problems. It aims to sell 120,000 autos and to be profitable next year.

--With assistance from Ola Kinnander in Stockholm. Editors: Suresh Seshadri, Chua Kong Ho

To contact the Bloomberg News staff on this story: Liza Lin in Shanghai at llin15@bloomberg.net

To contact the editor responsible for this story: Chua Kong Ho at kchua6@bloomberg.net undefinedundefined -0- Jun/15/2011 12:52 GMT


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