GM to lend more to Saab, get option to buy rest of company Swedish automaker continues to struggle

June 25, 1996|By BLOOMBERG BUSINESS NEWS

STOCKHOLM, Sweden -- General Motors Corp. said yesterday that it will pump more money into Saab Automobile AB and could obtain full ownership of the struggling Swedish automaker within three years.

GM and Saab co-owner Investor AB each will inject $262 million, or a total of $524 million, in loans into Saab. In addition, GM will receive an option to buy some or all of Investor's 50 percent stake in Saab in 1999 or 2000.

The move continues GM's recent efforts to make its Saab investment pay off by taking greater control of the automaker.

GM is hoping that it can do with Saab what Ford Motor Co. has done with the once-ailing Jaguar PLC, but Saab's success is far from assured, analysts said.

"Saab has proven to be something of a black hole for cash for GM," said Burnham Securities analyst David Healy.

GM is betting that new models and a pumped-up marketing budget will boost worldwide sales enough to make Saab more than the minor global automaker it is today, with two models and a market share of only 0.2 percent in the United States, its largest market. Its sales last year were $3.01 billion.

"What we are doing aims to increase sales volumes by more than 50 percent in the next five years," said Louis Hughes, Saab Auto's chairman. Hughes also is president of GM's international operations.

Saab's future "is really difficult to forecast right now," said Gunnar Andersson, analyst at Handelsbanken.

"Everything hinges on the success of the new models."

GM shares fell 50 cents to $54.375 yesterday.

GM has pumped $1.1 billion into Saab, not including the loans announced yesterday, since the Detroit-based automaker acquired its 50 percent stake for $600 million in 1990.

Saab has turned an annual profit only twice since then and isn't expected to be consistently profitable for four more years, its chief executive, Keith Butler-Wheelhouse, has said.

To survive in the global auto market, carmakers need a wide product range and high volumes, industry analysts say. Saab will use its new funds to try to reach those thresholds.

Next spring, it plans to introduce a third car model to complement its 900 and 9000 series. Within a few years the carmaker, known for its luxury, sporty look, will make a station wagon. Company officials have said a compact car is not out of the question.

Pub Date: 6/25/96

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