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Saab Files for Voluntary Reorganization

"We're not trying to pay pennies on the dollar."

by on Sep.07, 2011

Saab hopes to re-open its plants even while under a court-ordered reorganization.

Facing increasing pressures over unpaid bills Swedish Automobile, the parent of cash-starved Saab, has filed for voluntary reorganization under Swedish law.  The move, a last-ditch attempt to buy time while it raises much-needed funds, is an alternative to a bankruptcy filing that might have led to the collapse of the troubled carmaker.

Effectively a self-managed reorganization, the move is aimed at working out plans to pay worker salaries as well as bills owed Saab suppliers and other vendors.  A senior company official said the 90-day process could also see Saab resume production at its headquarters assembly plant in Trollhattan, Sweden.  That factory has been idled since it was struck by a supplier boycott in late March.

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“This gives us some stability” while efforts are underway to raise some desperately needed cash, Tim Colbeck, President and COO of Saab Cars North America, or SCNA said in an interview with TheDetroitBureau.com.  The reorganization, he noted, only affects Swedish Automobile and some of its key subsidiaries in Sweden.  Sales operations in North America and the U.K., among others, are not directly impacted.

Saab’s situation has been worsening for months, though in hindsight analysts say Swedish Automobile – then known as Spyker Cars – was grossly underfunded from the moment it completed the purchase of Saab from General Motors in early 2010.  The situation was worsened by the 7-week delay in re-launching production at the Trollhattan plant following the acquisition.

By March of this year several key suppliers became upset over unpaid bills and began a boycott that has only worsened the financial crisis since the maker has far less product to sell.  Saab does continue to produce the new 9-4X crossover-utility vehicle at a Mexican plant owned by General Motors, and it still has some inventory of 9-5 and 9-3 models produced before the boycott began.  But sales have been miniscule — just 363 in the U.S. last month — many potential buyers avoiding a brand that they fear could collapse any day.

Complicating matters, Saab has been unable to pay many of its 3,700 Swedish workers, though company officials now say checks will be issued within 24 to 48 hours after the reorganization application is approved by the Swedish courts.  Employees in the U.S. have continued to be paid.

There had been growing concern that the IF Mettal union or suppliers would wind up forcing Saab into a full bankruptcy and that it might not be able to avoid a complete collapse if that were to happen.  The reorganization appears to forestall that threat – for now, providing a 90-day period of protection that could be extended for another 90 days.

“The eventual purpose of the proposed voluntary reorganization process is to secure short-term stability while simultaneously attracting additional funding,” Swedish Automobile officials said in a statement.

Just last week, it appeared Saab might have found a white knight, reports from Europe indicating one of Europe’s top five banks was considering a loan of almost $160 million.  That option is still under discussion, said SCNA chief Colbeck.  “Just timing-wise it wasn’t done soon enough.”

What appears to be the real key to salvation for the automaker maker is a pair of deals Swedish Automobile has negotiated with Pangda, the largest Chinese auto distributor, and China’s Zhejiang Youngman Lotus Automobile.  The two companies would get a slim majority stake in Saab in exchange for some desperately needed cash.

The deals are slowly working their way through the complex Chinese regulatory process but officials have indicated things are expected to move ahead later this month.

Ever since the supplier boycott began, last March, Saab officials have struggled to resume production.  “An orderly restart” is a key goal of the reorganization, according to Saab Chairman Victor Muller, who also heads Swedish Automobile.

The executive warned there could be “a number of tough issues and decisions” to deal with during the next 90 days.  However, SCNA Chief Operating Officer Colbeck asserted that the goal of the filing was not to shirk outstanding debts.

“The plan we submitted was to reimburse all the suppliers 100%,” stressed Colbeck.  “There’s no plan to cut debt and avoid some of our obligations.  This is a 100% plan.  We’re not trying to pay pennies on the dollar.”

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