Global Car Industry

Can Saab be saved?

Saab factory
Image caption Investors considering Saab will be asking themselves what exactly they are buying

Having applied for protection from its creditors, Saab will now have to rebuild its finances.

This can only be done with a fresh injection of funds.

Without it, the company will remain unable to pay its 3,700 workers and 800 suppliers, hence it will struggle to secure their services in future, which means it will no longer be able to produce cars.

The uncertainty about the carmaker's future has spooked its customers, so Saab dealers have been finding it increasingly difficult to sell the cars.

"The ongoing troubles at Saab is doing little for its reputation among demanding customers in the premium car market," observes IHS Automotive analyst Ian Fletcher in a recent note.

"In this highly competitive business it is being outperformed by more capable rivals such as Germany's Audi, BMW, and Mercedes, and even local rival Volvo Cars, all of which have seen demand surge of late after the collapse in 2009."

Image caption Swedish Automobile chief Victor Muller is facing the battle of his life, trying to keep Saab going

Last year Saab sold just 30,000 cars, this year even fewer, so it is falling far short of the 120,000 it would need to sell to break even according to the business plan hammered out by Swedish Automobile's chief executive Victor Muller.

Mr Muller's sales target might seem lofty compared with his company's actual performance, though compared with the rest of the industry it is modest.

Elsewhere in the sector, it is widely believed that a carmaker must sell more than 200,000 cars per year to remain healthy.

Chinese investors

Anyone considering investing in Saab will now be asking themselves what they are actually buying.

With demand for Saab's cars dwindling, and with concerns about the Swedish factory's ability to keep up production, most potential investors are shying away from the company - so a buyer will be able to enter the negotiations from a position of power.

In recent months, Mr Muller has been striking deals with several Chinese companies to sell minority stakes in Saab, though the discussions have been complex and some of the deals have subsequently unravelled, with others remaining in doubt.

Image caption Will the Trollhaettan factory still produce Saab cars in the future?

One reason for this is that regulatory approval has been slow coming, not only in Sweden but in China too, where the situation appears particularly complex.

"Questions are being asked about the deals struck in China, given the regulatory hurdles erected by the Chinese government, particularly in the face of slowing market growth and the National Development and Reform Commission's (NDRC) protection of the market," observes Mr Fletcher, referring to China's strategic decision to favour large, dominant carmakers over small independent ones.

"Even if these deals are approved, it could take many months or even years before a final decision is reached, time that Saab does not have."

Mr Muller has also been trying to get his former business partner, the Russian banker Vladimir Antonov, on board as an investor, but this too has proved awkward as both the Swedish debt office, which guarantees a 499m-euro loan from the European Investment Bank (EIB), and the bank itself have been slow and reluctant to approve his involvement.

Brand name

It might seem odd that Saab is in difficulty, given that Mr Muller secured such a large loan from the EIB when his company bought Saab in January 2010.

But that loan was earmarked for 80 pre-determined engineering projects, with tranches being paid out only if Saab met certain performance targets.

Image caption The Saab brand is jointly owned with Saab Aerospace

Most of these funds remain frozen, another reason why Saab has been struggling to push forward.

Swedish Automobile still owns the Saab assets, however, and it has been trying to sell those on a lease-back basis, thus raising funds this way.

But this solution is also still in the air, suggesting that the whole saga may well have a sorry ending, with the eventual liquidation of the company remaining a distinct possibility.

If it comes to that, even the control of the Saab marque will be questioned.

The badge is jointly owned with the fighter jet company Saab Aerospace, which says Swedish Automobile cannot make any changes without its approval.

"They cannot sell the brand our use it on anything but cars," a Saab Aerospace spokesman explains, declining to comment on what the defence group would do if Saab cars was to be liquidated.

At this stage, the future is far from bright for the Swedish carmaker, but one thing is clear according to Mr Fletcher.

"The company is running out of chances."

Related Internet links

The BBC is not responsible for the content of external Internet sites