Car company profitability shouldn’t be that hard with this sort of stuff going on

When I was at Saab I was amazed at some of the services we were outsourcing and how much they cost. My perception was that the costs associated with this were negotiated to some degree, but mostly just accepted. It seemed to have become an ingrained behaviour, most likely under GM’s ownership of the previous 20 years. Saab’s ownership changed, but the culture of the company didn’t change nearly enough.

Or maybe this is just the way it is in the world of big, global businesses.

An article on the departure of GM’s Global Marketing Chief gives us some insight into some of these corporate spending habits:

Ewanick famously saved $48,000 by using just $2,000 of the $50,000 allowance he received to redecorate his Detroit Renaissance Center office by going to Ikea rather than ordering pricier furniture.

OK, so he’s a top tier executive, but $50K just to redecorate an office? Kudos to him for not using it all.

If you’re wondering why some car companies struggle to be profitable, then rest un-assured that there’s quite a bit of waste going on in most of them.

At Saab, we had a cost-cutting program called Cheetah in our final months. One could rightly say that it should have happened in the first months of Spyker’s ownership rather than as an attempted salvage operation at the end. There were indeed some wasteful spending decisions well before then.

I remember reading some complaints about the PhoeniX concept, which I never thought was a valid complaint for people to have. PhoeniX was absolutely appropriate for a company looking to re-stamp itself on the automotive scene after all the negative news surrounding the GM sale. It got Saab plenty of magazine articles and covers, too.

But I did wonder about the big ‘Independence’ party that happened in the factory just before production stopped in 2011. It seemed a little bit presumptuous and the way history has turned out, it seems suppliers probably didn’t appreciate it, either.

They might take solace in the fact, though, that as far as I know there weren’t any $50,000 office decorations.

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  1. I suspect that dealers felt the same. Being forced to buy the expensive “house style” from Saab at Saab prices. White tiled floors, glass stands etc. etc.

    Does it matter to a customer? Saab dealers were so few and far between that a corporate identity was likely to be missed by most customers. And thousands spent on “bling” was money lost to the sales staff in “assisting” the customer.

  2. Hi Swade,

    thanks for everything you’ve done in those strange months…

    I finally got the car i fought for… a 2010 ng 9-5 🙂

  3. Steven,
    Applying super big company GM’s standards on Saab is bound to go wrong.
    But that is unfortunately the case working with some multinational American companies. What they find reason and rhyme to in Detroit, should be a rule globally.

    I once asked a GM Detroit person: “What about if someone, somewhere within GM do not follow your guidelines?” the answer was “Then we enforce them.” this says something about a major difference in thinking and acting. My hope that if the same question was put to a big Swedish company the answer would be: “Then we explain why the guidelines are important.”

    Looking at the last year with Saab, there was certainly a lot of strange things happening. Laying off (paying off) a lot of experienced people is one of them that I can add. That must mr. Muller be held accountable for. Not Jan-Ã…ke Jonsson.

    Regarding Cheetah I do not recall anything really productive came out of that at the business unit where I was at.

    The independence day celebrations I appreciated very much. As a longtime employee I have gone through many hardships in loyalty with my company. This was a gift without strings attached, from the company to us. Supplier base may complain, some of them have had a very prosperous development with their involvement with Saab. Credits where credits due.

    Thanks and best regards,

  4. If one’s profit is negative for a long enough time, there is only one outcome. The bigger the loses the shorter the time one has.

    Just a thought.

  5. I too felt the independence party was over the top.

    Perhaps Mr. Ewanick was fired because he didn’t waste enough cash.

  6. Mr. Ewanick may have done himself a bad favour saving that 48.000$ on office decorations. Yes, this may have made some of his lower tier collegues happy, but people on his own level and higher were most likely not happy with that. Actions like this, especially with all the associated fanfare are publicly seen as a bright example of how executives should restrict themselves (especially when times are hard) and noone enjoys restricting him/herself.

    It’s difficult for me to judge Saab party, but if anything, at the time I had a feeling it created some positive buzz amongst Saab comunity. I don’t have a clue what kind of money was spent there. I can just say, that I regret what happened to Saab. I think it could have worked with maybe just a little goodwill from SweGov that was never there. My feeling was that at the time of Geneva 2011 Saab finally managed to overturn media opinion around… and then…crash.

  7. I’ve worked for four Global 200 companies in my career: one American company, one Swiss-Swedish joint venture, and two Japanese multinationals. All but my current employer have these policies. In fact, the one with the richest, poshest US HQ office was by far the European corporation. Doubly true since it was/is in Southwestern Connecticut, some of the most expensive real estate in the country.

    The question isn’t one so much of ‘us vs. them’, but rather, as you highlighted with the ‘Independence’ party, one of hubris and entitlement. People work hard and expect to be recognized. That’s normal. The trouble starts when recognition ‘inflation’ sets in and runs unchecked. That’s the sign of an organization with too many layers and too many silos to act in concert with the ultimate aim of the company. That is, some folks have a different agenda than they should and nobody stops those folks.

    These runaway agenda have many forms, not just personal perks. Automotive labor unions have so many perks for their members that it’s shocking. Free, no-out-of-pocket healthcare coverage for life? Two years of salary for the workforce guaranteed if the plant is idled? The UAW’s Black Lake Golf Club? And who could forget Mr. Franz of Opel’s Russelsheim IG Metall faction declaring that he would cripple GM Europe if the Trollhattan plant were awarded Saab 9-5 production? Was he thinking in the best interest of the company? NO! He had selfish motives.

    The point? Where ever there are parochial actions that go unchecked there is waste and loss. Those selfish people cost every company in the world millions or billions everyday, and they come in all shapes and sizes.

        1. If I say I agree 98% people in general tend to concentrate on the missing 2% instead of the 98…

    1. Well said, would you consider becoming a University President? Might save some money.

  8. Well, Phoneix concept might have been cool and all that, but looking back it was obvious made out of money that Saab didn’t had, so i think it was wrong.If all Saab had was its current lineup then that it the way it is going to be i am afraid.

    The big mistake as i see it was to copy the koenigsegg plan without major modifications (but then Spyker was not really prepared for Saab, it was an opportunity raised from a recent failed take-over in the auto sport industry).

    Coupled with the fact of many of non-value adding activities IMHO (mille miglia, Independence 9-3 Cab, factory party, Well known agency’s, Sales “divisions” development of own tools ending up with non standardize tool).

    Victor cant be blame for everything for very obvious reason.But what was Swedish Automobile/Spyker Saab can.Also, it is very easy to see ALL mistakes looking back, anyone can do that but i guess there where voices saying pretty much the same thing back then. The best would have been if all Saab managers was to re-apply for their job and guidelines was made especially in the budget field.Common Sense. Economy 101 or whatever the might call it.

  9. Whoever is going to takeover Saab Automobile AB, it is generally thought that Saab AB is not going to allow the post-takeover Saab Automobile AB from using the Saab marque on cars not assembled in Sweden.

    However, I think if the owner is GM, there will be an exception. After all, just a few years ago when GM still owned Saab, there were talks of closing the Saab factory in Sweden and relocating production of Saab cars to the Opel factory in Germany. This shows Saab AB was prepared not to insist on Saab cars being made in Sweden when facing GM and American might.

    The new generation 9-5 is essentially a GM car with GM Ecotec engine and GM Epsilon 2 platform. I hope GM could resume its production (perhaps at the Opel factory in Germany where there is so much excess capacity and talks of plant closure and massive redundancy), obtain a licence from Saab AB to stick the Saab marques on these cars. In this way, Saab cars are revived, Opel factories and jobs are partially saved, win-win for all.

    1. The new owner is National Electric Vehicle Sweden (NEVS). The transaction isn’t finalised yet, but I don’t think GM would have any interest owning Saab even in the unlikely event that the NEVS deal fell through.

      1. Agree, but if GM were to re-inherit Saab their interest would be limited to parts sales (GM already owns most of that, anyway) and assets that could be liquidated, if any.

        1. I know it’s difficult to imagine that GM would resurrect Saab having previously abandoned it. But who knows, if GM could reverse their decision to sell Opel at the last minute, the possibility of their undoing the decision to shutter Saab cannot be ruled out, especially when:
          1. GM now finds itself lacking a premium, internationally aware marque (Cadillac is premium enough, but its not as well known internationally as Saab);

          2. it’s easy for GM to revive production of the new 9-5, given it is essentially a GM car; and

          3. NEVS doesn’t yet have the right to use the Saab marque. It is open to GM to bid for such right from Saab AB and Scania AB.

          I will welcome a situation in which:
          1. NEVS keeps the factory in Trollhättan and the Pheonix platform, and builds cars out of them with their own marques; and

          2. GM resumes production of the new Saab 9-5 at the Opel factory in Rüsselsheim, Germany or such other facilities as they wish, licensed to use the Saab marque.

  10. That story of $50.000 office decorating budgets reminds me of a tidbit I picked up in my old Organizational Communication course at university. GM have a long history of coddling their managers and executives, and catering to their whims. The story goes that an exec liked to snack before bedtime but was on the road. GM went to the considerable expense of hoisting a full-size refrigerator into this man’s upper floor hotel room (this was decades ago, long before in-room small ‘fridges)- from the outside of the building using a rooftop winch and piano movers. All so this guy could make a sandwich. Sounds like “new GM” still has not learned from their past.

  11. I prefer my mechanic’s explanation for why Saab went out of business: they sold a $30,000 car for $30,000.
    In his experience, there have only been a few cars that justified their selling price. The original NSX was one, so was the original Insight. The Previa was in that league mechanically, but the thin, rust-prone body let it down.
    In his eyes, there is no difference between a $20K Golf and a $40K A4. They use the same components assembled the same way.
    He’s always amazed at how Saabs are built. Case in point: 9-3 hatch with 500,000 km, in for a valve cover gasket. There is no visible wear on the camshaft. The engine looks and drives better than a Toyota at 1/10 the mileage.
    In his words: “there’s no way they can put that much money into the product and still make a profit.”

    $50,000 office renos may be shocking, but GM’s entire business is based on convincing consumers that a $15,000 pickup is worth three times that amount when you add $400 worth of leather. You only need to move a few of those to justify the office decor… Ewanick was hired to perpetuate the illusion that getting into debt to purchase a 1950s driveline (with 1950s gas mileage) is a worthwhile aspiration. His salary, bonus and perks are immaterial to GM, as long as he gets the job done.

    1. There is a LOT of truth in this well-written comment.

      Oddly, it’s also the story of Saturn, except that Saturns were in the $18,000 range.