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Saab's future in doubt after collapse of Koenigsegg deal

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Saab's future in doubt after collapse of Koenigsegg deal

AUTOMOTIVE NEWS EUROPE

NOVEMBER 25, 2009 06:01 CET

UPDATED: NOV. 25 00:10 CET

STOCKHOLM (Reuters) -- Koenigsegg's decision to pull out of talks to buy Saab puts in doubt the future of General Motors Co.'s money-losing Swedish unit.

GM's board will meet next Tuesday to consider the fate of Saab after the Koenigsegg deal collapsed, a person familiar with direct knowledge of the matter said.

GM has not been in active discussions with any other bidders for Saab and the decision by Koenigsegg to end the deal means that a wind-down of the Swedish brand is now likely, the person said.

Saab, which has made cars in Trollhattan, southwest Sweden, since 1949, employs 3,400 people, while thousands more jobs at the company's suppliers depend on its business.

Painful decision

Augie Fabela, the chairman of Koenigsegg Group, said the decision to pull out had been painful.

"Unfortunately, we have come to the conclusion that based on the delay of closing the transaction, in our judgment we no longer felt we were able to deliver our new Saab plan," he said.

"The company has been managed very tightly for cash, and at a certain point you have to start running the company as a growth engine, and we just weren't able to get there in time."

Fabela said the decision by Koenigsegg, maker of one of the world's fastest and most expensive sports cars, was not due to funding pressures.

"No, everything was moving, it just wasn't moving at a fast enough pace," he said.

GM never made money on Saab during the nearly two decades it owned the brand best known for its 9-5 and 9-3 sedans. Efforts to use GM platforms to engineer recent Saab models failed to win back buyers and an ad campaign to sell the brand as "Born from Jets" fizzled.

Saab on life support

GM Vice Chairman Bob Lutz described the brand as having been "on life support" by its Detroit-based owner for years.

"Saab has very well put together cars, design and engineering. But they have not had that one car that was a game-changer," said George Augustaitis, analyst with CSM Worldwide.

The idea of a deal between GM and Koenigsegg, which made just 18 cars last year and has a staff of around 45, raised eyebrows since it first broke in May.

Questions over financing have dogged the proposed purchase, officially announced in August, and a final decision from the Swedish government on guarantees for crucial loans from the European Investment Bank had yet to be made.

In September, state-run Beijing Automotive Industry Holdings (BAIC) agreed to take a minority stake in Koenigsegg. That would have given BAIC a global footprint in the car industry and boosted Koenigsegg's coffers.

GM said it would assess the situation in the next few days.

A spokesman for Saab said the firm was disappointed.

"We had hoped this deal would go through," Saab spokesman Eric Geers told Reuters.

"We have a good business plan, but now Koenigsegg has pulled out, so we will have to see what will happen."

Saab sold 93,295 vehicles globally in 2008, representing 1.1 percent of total GM sales volume, down 25 percent from 2007.

GM bought 50 percent of the firm in 1989 when Saab was established as an independent company. It bought the rest in January 2000.

No Swedish gov't rescue

Sweden effectively ruled out state aid for Saab on Tuesday.

"You can't, by state aid, keep a company ongoing, if you don't have any chance for a competitive company," Joran Hagglund, state secretary at Sweden's Industry Ministry, said.

Hagglund, however, did not rule out all support for Saab -- if it can find another private buyer.

He said the Swedish government would not own assets in the automotive industry. "But we can facilitate with loan guarantees and we also have this tool of a rescue loan with very hard conditions," he said.

"We are willing to discuss that with any potential buyer for Saab."

The center-right government said in December last year it would provide up to 20 billion crowns in credit guarantees and a further 5 billion crowns in emergency loans to the auto industry.

Finance Minister Anders Borg said at the time that the funds would be allocated with the aim of ensuring local manufacturers' research and development projects, as well as production, remained in Sweden.

IF Metall union representative Stefan Lofven said it was not only Saab's production that was at risk.

"It is about the thousands of employees in the supplier chain and even more in other sectors that are dependent on Saab," he said.

"That can only be assured by a private owner who really is familiar with the market conditions."

Saab has not made a profit since 2001. Saab has said it lost about $340 million in 2008. GM has not released more recent financial information for the brand.

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