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, CEO of Spyker and Saab, said Tuesday.
Youngman makes cars developed with help from the UK consultancy Lotus Engineering. It is part of the China Youngman Automobile Group that also makes buses and trucks.
"We feel that Saab as a premium European brand appeals strongly to the taste and preferences of the Chinese customer," Pang Qingnian, CEO at Youngman, said in a statement on Tuesday.
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.
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., Zhejiang Geely's 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.
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.