The end of the Swedish Car Industry?

This blog has followed recent events in the car industry closely, with an eye to the long-run viability of car manufacturing in mature economies. The last week has seen massive changes affecting Saab and Volvo, Sweden's two biggest car manufacturers.

Last Friday the majority US government owned GM, the owners of Saab, which is trying to restructure itself as a precursor to an IPO, announced that it was unable to find a buyer for Saab and would wind the company down. Saab, which stands for Svenksa Aeroplane Aktie Bolag, which actually means Swedish Airplane Corporation was established in 1938 as an aircraft manufacturer to build planes for the Royal Swedish Air Force. After 1945 the company diversified into car production, focussing on affordable cars, eventually selling its car subsidiary to GM in 2000. GM had owned a 50% stake in Saab's car subsidiary since 1991; however this investment has turned out to be a very poor one as Saab cars have failed to make a profit since 2001. Now Sweden's government have rightly refused to bail out Saab, although attempts are continuing to sell the company to a performance car maker, Spyker of the Netherlands. Such a sale would however probably mean the end of Saab as a volume manufacturer.

Over at Volvo, established in 1927 as a spin-off company from the ball bearing manufacturer SKF the future of the company as a volume manufacturer in Sweden also looks dubious. Volvo was purchased from the rest of the Volvo group, which continues to make commercial vehicles and construction equipment, by the Ford Motor Company in 1999. Volvo had continued to be a strongly independent subsidiary within Ford, continuing to specialise in safety and engineering innovations in-house. However Volvo's continued reputation, particularly for making high end family cars has not been sufficient to sustain its position in the western market, with sales falling 18.3% in 2008. Ford, itself struggling with the downturn, has now decided to sell on Volvo to Geely, a Chinese manufacturer. While Geely may choose to keep Research and Development in Sweden, with production costs, particularly wages, being very high in Sweden it seems unlikely to keep Volvo manufacture in Sweden for long.

No doubt some manufacturing will continue in Sweden for the European market, but as Volvo production is increased at lower cost for the Chinese market for how long can this be expected to continue? Or could Volvo be a rare case in which the country where the product is made counts, given Sweden's general reputation as a country which manufactures quality products? Not if the case of furniture retailer IKEA, a company which for many consumers embodies Swedish design and quality, is taken into account; it has successfully sold 'Swedish' furniture made in China, among others, for many years now.

Cadbury - end of ethics?

This week the UK chocolate and confectionery manufacturer Cadbury, manufacturer of the iconic Dairy Milk brand among others advised its shareholders to accept a hostile take-over bid from US food conglomerate Kraft Foods. With Kraft's US rivals Hershey also entering the fray it would appear that Cadbury's existence as an independent is likely to come to an end after 185 years. British chocolate eaters will fear that the distinctive taste of Cadbury's products may be under threat; however the ethical stance of Cadbury's, something relatively rare in the food market, may also be under threat.

Quaker Chocolate maker John Cadbury first opened a shop in Birmingham in 1824 to sell drinking chocolate. By 1831 he had started manufacturing; the company remained a family concern and by 1879 Cadbury's sons established a new factory on a green field site at Bourneville, on the outskirts of the city, where it continues to manufacture today. At Bourneville the company established one of the 'model villages' of the nineteenth century for its workers, building detached houses with gardens (unusual in what was otherwise a crowded industrial city), as well as providing pension schemes, education, training and health schemes for employees.

It seems likely that such benefits were not extended to the firm's suppliers in the then British colony of Ghana in West Africa; but under ethical pressure in early 2009 the firm announced that it was moving to Fairtrade certification of its Dairy Milk brand. The Fairtrade Foundation aims to guarantee that farmers working for Cadbury in Ghana receive a fair living wage. Cadbury are rare among mid market chocolate makers in adopting Fairtrade, which is usually reserved for the high end manufacturers. It will be interesting to see whether or not Kraft or Herschey will value the Dairy Milk brand enough to retain its Fairtrade status; if they are wise they will continue with this as part of a premium international image for Dairy Milk, as well as continuing its manufacture at Bourneville, a crucial part of its 'Made in Britain' image.