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So Long SAAB

Thursday April 7th 2011

In September 2010 I reported on the difficulties that faced the auto industry. “Auto’s Accounting Agony” September 29th 2010. Not only are the costs of designing, testing and producing a successful new model extremely expensive, the inputs to the supply chain in terms of raw materials are on a sky rocketing upward trajectory.

I recall at the time that the harsh and critical comments I made about SAAB drew quite a heated reaction, mostly from die hard SAAB enthusiasts.  That is fine, everyone is entitled to their opinion and if I am big enough to publish a comment in the public domain, then I am more than willing to take the resulting flack.

I wonder though what those that I clearly angered in the past are saying now? *

Production lines at SAAB have shutdown again. This is the 4th time in the past 2 weeks. Now this is not just me havinga swipe, the credible news agency AFP has reported that SAAB has had to halt production until it can stabilize its financial situation. In the past week the auto manufacturer has ceased vehicle production on no less than 3 occassions as suppliers finally snapped at overdue bills for componet parts. At the  moment the current cessation of activity has no clear end date. AFP reported that SAAB was awaiting an injection of additional funding.

We all know the history so I will refrain from a trip down memory lane but I did express my disbelief at the time Dutch sports car manufacturer Spyker steeped in with a $500m deal that was incredibly based on a loan granted by the European Investment Bank (EIB), and guaranteed by the Swedish government after much debate. If ever there was a deal where a national government was panicked by he prospect of additional unemployment this was it.

In all the years that General Motors owned SAAB it only had one profitable year. In 2010 global sales for the brand slipped to 32,000. This is dire when one realizes that under GM’s stewardship (which I accept was far from perfect), sales used to be in the region of 130,000 units per annum.

At the time I said that if GM with all its knowledge about volume auto manufacture could not help SAAB turn a profit what on earth was Spyker going to do when it only sold extremely expensive cars?  Spyker has a history of struggling with debt since it was listed on the Dutch stock exchange in 2004 and sold just 36 cars in 2009.

I said then it would end in tears and failure and I repeat it again now.

Even the sports car core of Spyker has gone now as Spyker Cars agreed in February to sell its sports car business of the same name to a UK holding company, Coventry-based CPP Global Holdings Ltd. CCP will pay an initial €15m for Spyker’s assets, such as intellectual property rights and trademarks. Spyker says this will allow it to allow it fully concentrate running SAAB.

CPP is lead by Russian billionaire Vladimir Antonov and he previously held a 29.9% stake in Spyker; he was obliged to sell this when Spyker bought SAAB.

Spyker has said that it intends to rename itself Swedish Automobile NV, according to the agenda of the company's annual general meeting. The move is aimed at underlining that the company will focus entirely on its Swedish operations in the future, and is subject to shareholder approval at the AGM, scheduled for May 19th.  

Whilst the Dutch car company plays corporate scrabble today from the apparent sole focus of its attention we were treated to the following statement:

"…The interruptions are caused by shortages in material shipments in part related to the tight liquidity situation…The company is confident to soon resume normal operations, with the additional funding that we expect to secure…”

This is just not good enough. SAAB is owned by Spyker which is a publicly traded company. The investment community deserves and should demand far more detail. Who is lending the money and for what period at what rate. What are the conditions attached to new capital? Without clarity on this information I can see no reason why any investor would ever seek to hold shares in Spyker until such questions are answered head on. The stock peaked this year at €6.119 on February 2nd. It closed today, April 7th at €.862...down 36.89%!

It is not just a question of plant being closed for a while. Customers awaiting new cars are going to be fobbed off with an excuse to cover the delay. Word will get out and would be buyers will turn elsewhere so that they can get the car they want when they want it. Similarly there will eventually be a squeeze on parts for servicing the models already on the road. In the auto trade a reputation is hard won and lost quickly…it may never be won back. In this case it has gone for good.
 
So long SAAB…it was nice knowing you.
 
Stephen Pope   ~  Managing Partner

* I have received several pieces of feedback, most of which are from SAAB diehards. Needless to say they are not as doubtful as I am. Well...we shall see.

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