UPDATE:'Consistently Unprofitable' Saab Gets Shot At Survival
June 16 2009 - 5:38PM
Dow Jones News
Saab Automobile AB could get $1 billion and a new shot at
survival after a Swedish sports-car maker agreed to take over
General Motors Corp.'s (GMGMQ) troubled subsidiary.
A consortium led by boutique sports-car maker Koenigsegg
Automotive AB hopes to revive a lineup that languished as GM cut
off product funding to conserve cash. As part of the plan, Saab
vehicles will remain on sale in the U.S. and the company will
follow through on key vehicle launches that stalled amid financial
turmoil at GM.
Saab said it needed $400 million from GM to pump into Saab,
which includes $150 million already given to the company to fund
its restructuring. Another $600 million funding commitment is
expected from the European Investment Bank to be guaranteed by the
Swedish government, the companies said Tuesday.
The deal is a major step toward resolving unknowns facing GM as
it navigates through bankruptcy court. Saab's long-term future,
however, remains uncertain.
If the deal goes through, Koenigsegg, founded in 1994 by a
22-year-old entrepreneur to make cars for the super-rich, faces the
difficult task of reversing years of mounting losses and sales
declines at Saab.
Saab has been "consistently unprofitable" since GM acquired the
brand in 2000, GM Chief Executive Fritz Henderson said Tuesday in
an online question-and-answer session. He said a "myriad of
reasons" were responsible for the failure, but expressed confidence
that the new owners could turn Saab around.
"We ran out of money just on the eve of launching the newest
generation of Saabs, which we think will be outstanding," Henderson
said.
Saab was put up for sale earlier this year as part of GM's
efforts to return to profitability. Steady sales declines at Saab
accelerated dramatically in recent months, with the brand's future
in question.
GM would look to recover $150 million given to Saab as part of
the reorganization, a person familiar with the deal said.
Saab's May sales in Europe slumped 66% to 2,191 last month from
a year ago, according to data released Tuesday. In the U.S., just
783 Saab vehicles were sold in May, a fall of 64% and less than the
Hummer truck brand being offloaded to Chinese investors.
"There are enormous obstacles to overcome" in saving Saab, IHS
Global Insight analyst Tim Urquhart said in a research note
Tuesday. "Not least [is] ensuring that the company can limit its
cash burn and buy sufficient time and attract funding to underpin a
turnaround."
Shareholders in the new company are Koenigsegg, with a 23.4%
stake; its owner and Chief Executive Christian von Koenigsegg's
firm Alpraaz AB, with 42.6%; Norwegian holding company Eker Group,
with 11.8%; and San Diego-based Mark Bishop, with 22.2%, according
to court documents.
Saab was granted creditor protection in Sweden on Feb. 20, and
GM said it wanted to offload the unit by the year's end.
GM has agreed to provide powertrains and technology to the new
owners for an undefined time, and expects to build the brand's next
new release, the Saab 94-X crossover. Saab also plans to launch the
long-awaited revamp of its 9-5 model.
The deal comes a day before a Swedish court is expected to
approve Saab's proposal to slash its debt to hundreds of
creditors.
Meanwhile, haggling continued over GM's Adam Opel GmbH European
unit. Fiat SpA (FIATY) is still vying for Opel after the German
government chose Magna International Inc.'s (MGA) consortium over
Fiat's offer and pledged to provide bridge financing to keep the
company afloat.
Also unresolved in Europe is the future of Volvo, the wholly
owned Swedish subsidiary of Ford Motor Co. (F). It remains for sale
and interested parties include several Chinese companies - Beijing
Automotive Industry and investment group led by auto company Geely
Holding. The bidding for Volvo, which had been expected to
concluded by the end of this month, could now stretch deeper into
the summer or longer, according to a person familiar with the
matter.
-By Sharon Terlep, Dow Jones Newswires; 248-204-5532;
sharon.terlep@dowjones.com
(Ian Edmondson and Matthew Dolan contributed to this
report.)