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Scenarios for Saab's future

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Scenarios for Saab's future

NOVEMBER 25, 2009 14:01 CET

STOCKHOLM (Reuters) - The future of Saab looks bleak after luxury car maker Koenigsegg, backed by China's BAIC, pulled out of a deal to buy the loss-making firm from General Motors Co.

Saab never made money for its U.S. parent, which bought a 50 percent stake in 1990 and completed the purchase a decade later. Sales of the brand have nose-dived and GM, which itself emerged from bankruptcy in July, had said it would sever its ties with the Swedish firm at the end of this year.

Saab said it made a loss of about 3 billion Swedish crowns ($433 million) in 2008 and expected to lose a similar amount this year. Its survival plan envisaged returning to profitability in 2011.

GM wants to slim down and focus on core brands -- Chevrolet, Cadillac, Buick and GMC.

GM's board meets on Tuesday with Saab likely to top the agenda.

Here are some possible outcomes for Saab:

Closure

At the moment, this looks to be the most likely outcome. There are no other bidders for the brand, one person with direct knowledge of the situation told Reuters.

GM could, as it has done with its other European unit Opel, decide to keep Saab, but Saab is bleeding cash and is not as key to GM's strategic development as its German sister.

This means GM either has to restart the sales process or close Saab. Should another bidder emerge, it would be difficult to complete a deal in the short term and it is unclear whether GM would keep funding Saab past the end of this year.

Koenigsegg -- which sells hand-built vehicles for around $1 million -- said it had run out of time after negotiating to secure a deal, loans from the European Investment Bank (EIB) and guarantees from Sweden since June, when a preliminary agreement was reached.

Private buyer

Around 20 suitors were linked with Saab after GM said in early 2009 it wanted to sell it.

In addition to Koenigsegg, U.S. financier Ira Rennert and his Renco Group, Italy's Fiat S.p.A., China's Geely Automobile -- Ford's preferred bidder for Volvo Car Corporation -- and Dongfeng Motor Group -- were initially linked with a bid.

China's BAIC, which was backing Koenigsegg, could still bid for some Saab assets, but is unlikely to take on the whole company, according to analysts.

Saab needs massive investment in new models to catch up with rivals and reverse slumping sales in a market among the most difficult ever faced by auto firms.

A further wrinkle is that any buyer would need to continue working closely with GM and would rely on the U.S. firm for many parts, tools and much of Saab's technology.

Government ownership

Sweden has effectively ruled out a state bailout of Saab.

The center-right government, which had embarked on the Nordic country's biggest ever privatisation of state assets before the global financial crisis struck, has consistently said it would not take a stake in either Saab or Volvo Cars.

After Koenigsegg's announcement on Tuesday, the government's car czar said state aid would not help an uncompetitive company become competitive, only the private sector could do that.

On the other hand, the government is prepared to support a potential buyer. In December last year, Sweden said it would provide up to 20 billion crowns in guarantees and a further 5 billion crowns in emergency loans to the auto industry.

The money is meant to ensure that R&D projects and production remains in Sweden.

The country was expected to guarantee an loan from the EIB to Koenigsegg before the deal with GM fell through.

What's at stake

Saab has around 3,400 employees in Trollhattan, in southwest Sweden. However, thousands of other jobs are linked to the firm, both at its suppliers and in the local economy.

Sweden's government came to power promising that less state involvement in the economy would boost employment. But the worst recession in decades has sent jobless figures soaring. Doing nothing to help the region and Saab employees would not play well with voters and a general election is due next year.

The government may announce measures to help workers retrain and investment in local projects to create jobs for those who are affected by a closure of Saab's operations.

Vehicle production in Sweden is not threatened. Geely has said it will keep making cars in Sweden if it buys Volvo cars and world No. 2 truck maker Volvo and rival Scania continue to produce the bulk of their vehicles in the Nordic country.

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Post-bankruptcy GM now has control of GM DAT (post rights issue), is keeping Opel/Vauxhall and......... all of a sudden the SAAB deal breaks down *swide*

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Um, I think there is a post in another Saab thread that speaks directly to this issue.

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A plan and a business case was made to the Fat Lady (GM Board), each and every member knows the plan. Let them chew on it with their turkey this weekend. Let's see what song the Fat Lady sings on Tuesday, shall we? :smilewide:

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You're going to push for Saab to be fully assimilated into GME and have its entire lineup populated with rebadged Holdens?

Yeah, I'm dreaming, but seriously, given that Saab is on the cusp of releasing some fine GM-bred vehicles, I think GM shoud have the opportunity to benefit from it. When GM's financial situation improves and if the new Saabs take off, I'd consider pushing to make some US-bound Saabs on North American soil to avoid exchange rate issues from affecting profit.

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If GM is keeping SAAB it is more than a welcome sign. Given the amount of investment in that brand in the 11th hour it would have been a total waste to give the brand away. GM needs some quirkiness brand and none of current ones can satisfy that.

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"GM is going to focus on 4 core brands" Fritz said so, so it must be true.

Saab needs closed. GM lost $5,100 on every one they built.

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Saab needs closed. GM lost $5,100 on every one they built.

Might be some kind of professional defect of mine, but when a company says we lost USD X on this brand and at the same time the Board recognized for years on SOX-mandated appraisal of internal controls that those internal controls do not work properly (i.e. that there were material issues with GM's internal control), I start doubting every word they said. Even regarding Olds and Pontiac.

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If GM is keeping SAAB it is more than a welcome sign. Given the amount of investment in that brand in the 11th hour it would have been a total waste to give the brand away. GM needs some quirkiness brand and none of current ones can satisfy that.

I agree 100%

This and Saabs global presence alone should be enough to save the division IMO.

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I agree 100%

This and Saabs global presence alone should be enough to save the division IMO.

What global presence? They sell like 80k cars a year worldwide. GM had Saab's global presence for 20 years and they went bankrupt. Saab, Pontiac, Saturn, and Hummer were just money drains. They can't fund all these brands. GM needs to do things totally different than they used to, they can't use the same old strategy they used from 1980-2008 and think it will work. GM needs to put more money into Cadillac, not waste it on Saab.

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Saab is still pretty much a separate entity from the rest of GM. It has its own plant and its own design/engineering staff. I can see it being completely absorbed into GME to shed most of the cost of keeping it around. Opel can handle the design/engineering, and there's really no need for a separate plant. Any place worldwide that can run an Epsilon, Delta, or Theta platform through it is capable of making a Saab.

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Saab is still pretty much a separate entity from the rest of GM. It has its own plant and its own design/engineering staff. I can see it being completely absorbed into GME to shed most of the cost of keeping it around. Opel can handle the design/engineering, and there's really no need for a separate plant. Any place worldwide that can run an Epsilon, Delta, or Theta platform through it is capable of making a Saab.

I think you might be on the right track here.

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I think liquidation will be the outcome here.

Saab will be a sacrificial lamb.

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