Industry reports
Editor highlights

Saab Saved From Brink Of Death By Chinese

  • Currently 0/5 Stars.
  • 1
  • 2
  • 3
  • 4
  • 5
0 review
The value of stock for Saab’s parent company Swedish Automobile has fallen 80% this year. (Photo: Ilker)
The value of stock for Saab’s parent company Swedish Automobile has fallen 80% this year. (Photo: Ilker)

BUSINESS

  • Chinese automobile companies reach tentative deal to buy Saab
  • Saab days away from bankruptcy
  • Up to $1.5 billion may be needed to turn company around

Chinese automakers Zhejiang Youngman Lotus Automobile Company and Pang Da Automobile Trade Company have tentatively agreed to buy Swedish automaker Saab Automobile. The deal comes days before Saab would have been forced to declare bankruptcy.

Saab has been struggling financially for over the past year: in 2006, the company sold 133,000 vehicles, but by 2010, that number was down to 31,700 vehicles. In March 2011, production was halted due to lack of funds, with the company filing for protection from its creditors in September.

The value of stock for Saab’s parent company Swedish Automobile has fallen 80% this year.

This is not the first time Saab has had severe financial problems. It neared bankruptcy in 1989 and was purchased by General Motors. GM nearly eliminated Saab in 2009, and today Saab owes GM $326 million in preferred shares.

Zhejiang Youngman Lotus and Pang Da agreed to buy Saab for $142 million. Martin Skold of the Stockholm School of Economics says it will take much more than that to save the company, estimating that an investment of anywhere between $800 million to $1.5 billion is needed.

Analyst Martin Crum told Businessweek that Saab needs to improve its image, which has been harmed by all its financial woes.

The Chinese companies have agreed to reopen the Trollhattan, Sweden, plant which had been closed due to unpaid bills, and they will also open a production plant in China.

Saab employs 3,700 staff and will probably be forced to make job cuts, Swedish Automobile CEO Victor Muller said. The memorandum of understanding expires on November 15.

Hurdles To Deal

For the sale to be approved, Saab’s creditors, Chinese regulators, the Swedish government and the European Investment Bank must all validate the deal.

At the end of October, Saab administrator Guy Lofalk sent an application to Swedish courts asking them to terminate bankruptcy protection. Lofalk told Reuters: "The money is not enough to continue the reorganization. The original reorganization plan included financing which has not materialized."

Terminating bankruptcy protection means Saab or its creditors could demand the company file for bankruptcy.

Muller will meet with GM executives to convince them of the merits of selling Saab. Muller told Businessweek: “It’s not just the preference shares and technology rights. There are many, many relationships with General Motors, all of which need to be taken into consideration.”

No date has been set for the meeting.

Hopefully, a deal will be reached soon for the sake of Saab employees. For the fourth time this year, Saab’s 1,500 factory employees have not been paid on time. In June and July, Saab was a week late paying salaries. The Swedish government covered wages from July until October 21, when the deal to pay wages expired.

Monthly salaries, including taxes, total approximately $6 million, IF Metall works union counsel Darko Davidovic told the Detroit Free Press.

Key Statistics – Global Automotive Market (source: KPMG, 2011 Global Auto Executive Survey)

  • By 2015, nearly half of all automotive executives predict domestic sales in China will exceed 18 million.
  • Some 76% of automobile executives believe urban planning will drive vehicle design.
  • Half of automobile executives believe that in the future the automotive value chain will be completely changed.
  • Consumers cite the most important reasons for their vehicle purchases are fuel efficiency (91%) and safety (82%).

By Melina Druga for
Melina Druga is an American writer and editor. She is the author of Enterprising Women: Practical Advice for First Time Entrepreneurs.

Share this news with a friend or colleague

Share

Follow

Browse our categories

Browse our archives

ReportLinker is a professional search engine that provides an easy access to 1,2 million market research reports and industry statistics published by 200,000 authoritative sources.